Question
From:
(Redacted)
Sent:
Wednesday, April 14, 2010 3:05 PM
To:
Verne, B. Michael
Cc:
(Redacted)
Subject: 802.4/802.50 Analysis
Dear Mike,
Thank you for speaking with us earlier.Below is a note summarizing the facts and analysis we discussed.
Buyer will acquire 100% of the voting securitiesof Target, a U.S. company (whose ultimate parent is a foreign person), for $75million (the "Proposed Transaction"). Target owns 100% of ForeignSubsidiary, which Buyer will indirectly acquire in the Proposed Transaction.Foreign Subsidiary holds manufacturing assets outside the U.S., and does not have assets in the U.S. or 2009 net sales in or into the U.S. of more than $63.4 million. For purposes of looking at sales in or into the U.S. in 2009, based on your advice from the PNQ, we believe we should use the averageexchange rate for 2009 to convert any foreign currency into USD.
Foreign Subsidiary's sales into the U.S.consist of intracompany sales to Target, as well as a small amount of salesdirectly to third parties in the U.S. Target, whose assets in the U.S. consistof distribution and not manufacturing assets, resells those products boughtfrom Foreign Subsidiary to customers in the U.S., with a small amount of salesto customers in other countries. The Foreign Subsidiary's intracompany salesreflect the transfer price to Target. Based on this informal information, webelieve this is the correct approach for calculating sales into the U.S. (asopposed to calculating sales based on the price at which Target resells theproducts) since this is the price at which Foreign Subsidiary records the saleson its books.
If Target directly and indirectly(through Foreign Subsidiary) holds assets whose acquisition would otherwise beexempt, then we could look to 802.4 to determine whether the Proposed Transactionis exempt from HSR. If, for example, Buyer were to directly acquire the assetsof Foreign Subsidiary, the acquisition of those foreign assets would be exemptunder 802.50, because Foreign Subsidiary (i.e., the foreign assets) does nothave net sales in or into the U.S. of more than $63.4 million.
Under 802.4, if the fair market value ofthe remaining non-exempt assets held by Target does not exceed $63.4 million,then the Proposed Transaction would be exempt from the HSR Act. However, if thefair market value of the remaining non-exempt assets (i.e., Target's assetsexcluding those assets held by Foreign Subsidiary and exempt under 802.50) isabove $63.4 million, then the whole $75 million Proposed Transaction isreportable.