Question
From:
(Redacted)
Sent:
Monday, April 26, 2010 9:06 AM
To:
Verne, B. Michael
Cc:
(Redacted)
Subject: HSR Question
Mike,
I am working on a transaction with (redacted)(both copied on this message) and we're hoping you can confirm our HSRanalysis.
The target company is structured as aholding company ("Holdco") that holds 1 00% of the voting securitiesof an operating company ("Opco"). Buyers are 6 different entitiesthat together currently hold all the subordinated debt (the "Notes")of Opco, and a small percentage 5% aggregate total) of the voting securitiesof Holdco. The 6 buyers' percentage holdings are fixed with respect to oneanother; they hold the same percentage of Opco Notes and the same relativepercentage of Holdco voting securities. Their acquisitions, as described below,will be fixed in the same percentages. Among the buyers, one("BuyerA") represents approximately 69%. BuyerA is not within thesame person as any of the other buyers.
The transaction is essentially arestructuring and recapitalization by the target to avoid insolvency, with the resultthat the buyers will together hold 95%-plus of the voting securities of Holdco.
The transaction is structured in stepsas follows:
2.Mergerco will merge with and into Holdco, with Holdco surviving. As a result ofthat merger:
(a) The existing common shares of Holdco will beconverted into a very small amount of Holdco New Common shares. As a result ofthis conversion, the current majority shareholders of Holdco will end upholding a total of $1.5 million of New Common, and the buyers will end upholding $74,500 in shares of New Common (of which BuyerA will hold $51,500)
(b) BuyerAs Notes will be exchanged for $27.3million in shares of New Common.
(c) BuyerA will acquire $15.2 million in additionalshares of New Common, and $17.3 million in Preference shares (which are votingsecurities) of Holdco.
3. Immediately following the merger ofMergerco into Holdco, the other 5 buyers will exchange their Opco Notes for anaggregate total of $12.1 million in shares of New Common of Holdco. They willalso acquire, for cash, an aggregate total of $6.8 million in additional sharesof New Common, and $7.7 million in Preference shares of Holdco.
Note that the values specified above,including the conversion values for the existing common and the Notes, will bespecified in the relevant agreements.
Thus as a result of the merger:
(i)BuyerA will hold a total of $59.9 million in voting securities of Holdco: $42.6million in shares of New Common ($51,500 exchanged for old common, $27.3million exchanged for Notes, and $15.2 million newly
(ii)The other 5 buyers will hold, in the aggregate, a total of $26.6 million invoting securities of Holdco: $18.9 million in shares of New Common ($22,900exchanged for old common, $12.1 million exchanged for Notes, and $6.8 millionnewly purchased for cash) and $7.7 million in Preferred.
(iii) The current(pre-closing) shareholders of Holdco, other than the buyers, will hold a totalof $1.5 million in voting securities of New Common (all exchanged for oldcommon).
We believe that this transaction is notreportable under the HSR Act because the size of transaction threshold is notmet --no person will hold, as a result of the transaction, more than $63.4million in voting securities of Holdco.