Question
From: (redacted)
Sent: Thursday, December 17, 2009 3:32 PM
To: Verne, B. Michael
Subject: Informal HSR Request
Mike,
I have a situation in which entities A and B, whichare non-corporate entities for purposes of the HSR Act, will be consolidatedinto a newly formed LLC ("NewLLC"). A is wholly owned by IndividualX. B is controlled by Individual Y but there are significant minorityshareholders.
The parties have not determined exactly how theconsolidation will occur. A and B may contribute their assets directly toNewLLC in exchange for the LLC interests to be distributed to their respectiveinterest holders. Another possibility is that the interests of A and B will becontributed to NewLLC such that A and B would become a wholly ownedsubsidiaries of New LLC. Finally, A and B may be merged into NewLLC. In anyevent, after the contribution of assets, the contribution of non-corporateinterests or the mergers, Individual X and Individual Y will be substantialholders of the interests in NewLLC and the value of their interests will exceedthe current minimum of $65.2 million, but neither will hold 50% or more. Theremaining LLC interests will be distributed to the other current interest holdersof B.
I do not believe that the acquisition of theinterests in NewLLC is reportable under the HSR Act by anyone. Section 801.50of the FTC Premerger Notification Rules ("Rules") provides that inorder for an acquisition of interests in a non-corporate entity to bereportable, someone must acquire control of the newly formed non-corporateentity-50 percent or more of the rights to current profits or to the assets ondissolution. However, the Rule indicates that it does not apply "inconnection with a consolidation." Since neither A nor B is its ownUltimate Parent Entity, I don't believe that the proposed transactionconstitutes a "consolidation" under Section 801.2(d)(2)(iii) sinceneither individual X nor Y will lose his pre-acquisition identify become awholly owned subsidiary of the newly formed entity. A second reason I believeindicates that the transaction does not require a filing is that neitherIndividual X nor Y will meet the criteria of Section 801.10(d), which valuesthe interests to be acquired in an unincorporated entity, since neitherIndividual X nor Y will receive 'control of an existing or newly formedunincorporated entity.
Please let me know if you agree with my conclusionsthat a) the transaction is not reportable, and b) the method by which theIndividuals X and Y receive their interests in NewLLC is not material.