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Date
Rule
801.50
Staff
Michael Verne
Response/Comments
of-person test for the first acquisition because 801.11 (e) only allows you to exclude the cash for that acquisition. The cash for the second acquisition would count toward the size-of-person test in the first acquisition. So the acquisition that satisfies the size-of-transaction test would be reportable. I agree that this would not be reportable if none of N, H and I will have the right to 50% of the profits or assets on dissolution. This assumes that N and H are contributing their businesses to Newco, but will stay in existence and hold interests in Newco (not their shareholders/ interest holders). This kind of moots the FMV point, but since this is an acquisition of partnership interests you do take into account Newco's debt in determining the value of the partnership interests (you threw me for a moment -I assume you meant $75 MM in debt, not 75%.

Question

From:

(Redacted)

Sent:

Tuesday, April 13, 2010 11:07 AM

To:

Verne, B. Michael

Subject: RE: Two acquisitions

Mike:

I have a few more facts and they appearto be a bit different. The facts of the transaction appear to be as follows:

N is a company with @ $700 million in salesand assets of @ $143 million. H is a company with sales of @ $100 million andassets of @ $55 million.

Both N and H will be contributing theirrespective businesses to Newco, a newly formed limited partnership. Just priorto the contribution, the shareholders of N will receive a $40 million note fromN, and the shareholders of H will receive a $20 million note from H. H alreadyhas $7 million in debt. Investor group I will be contributing $10 million incash. Newco will also receive bank financing (@ $65-70 million) so that it canpay the notes after closing and re-finance H's existing debt.

Consideration for the cash infusion andthe acquisition of these companies will be equity in Newco, such that N willown 48%, H will own 34% and I will own 18%.

Because of the debt that Newco hasassumed (either by direct assumption in connection with the contribution of Nand H's assets or via the merger of N and H into Newco), the equity value ofNewco is $75 million.

Analysis:

1.801.50 govern and Newco is an acquiredperson, while N, H and I are acquiring persons.

2.The size of person test has been met.

3.The transaction is not reportable,though, for two reason. First, neither N nor H will control Newco, per801.50(b)( 1). Second, the FMV of Newco, given its debt is 75% and thus thesize of transaction test will not be met by either H nor N. I understand thatthe FMV must be determined in accordance with 801.10, but would like yourguidance on whether, under the facts as outlined above, such an FM would bereasonable.

Please let me know whether or not youagree with the above analysis based on the facts presented.

From: Verne, B. Michael[mailto:MVERNE@ftc.gov]
Sent: Monday, April 12, 2010 11:56 A
To: (Redacted)
Subject: Two acquisitions

Actually, you would satisfy thesize-of-person test for the first acquisition because 801.11 (e) only allowsyou to exclude the cash for that acquisition. The cash for the secondacquisition would count toward the size-of-person test in the first acquisition.So the acquisition that satisfies the size-of-transaction test would bereportable.

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