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Date
Rule
802.65
Staff
Michael Verne
Response/Comments
This sounds vaguely like the other transaction you had a few weeks ago with a control issue involving 802.65. In this scenario, however, you made it clear that the overarching rationale behind the transaction is to combine all of the LLCs into one LLC that the investor will put cash into and take a temporary controlling interest in, rather than the LLC, subsequent to the investment making strategic acquisitions. We don't think that the fact that this is spread out over six months is significant to the analysis. We think that you can exempt the entire transaction under 802.65. Note, however, that going forward if the LLC makes subsequent acquisitions prior to the "flip point" being reached, the investor would be the acquiring UPE. K Walsh concurs.

Question

From:

(redacted)

Sent:

Tuesday, May 15, 2012 2:49 PM

To:

Verne, B. Michael

Subject:

Application of Rule 802.65

Mike-

I'mwriting with respect to whether the following transaction is exempt from HSRfiling requirements under Rule 802.65. A is a financial investor that isforming LLC 1 with B. A will contribute only cash and B will contributeoperating assets. Initially A will have a greater than 50% interest in LLC 1until it realizes a preferred return, after which A will have a minorityinterest and B will have more than 50%. This "flip point" may notoccur until 10 years after A's initial capital contribution in LLC 1. A'sinitial acquisition of the more than 50% interest in LLC 1 may be valued atunder the $68.2 million HSR size of transaction threshold, but even if itexceeds that threshold, I understand that this initial acquisition would beexempt under Rule 802.65. See June 1, 2007 Information Interpretation 0706002.Within six months after closing of A's initial investment in LLC 1, anadditional set of proposed transactions that would be subject to separateclosing conditions but to the same fundamental financing (or "flip")may take place. In this second set of transactions, A would contribute anadditional $80 million in cash to LLC 1 to fund LLC 1's purchase of two LLCs,LLC 2 and LLC 3, that each are held 100% by B, and that each hold operatingassets. A would like to make the same financial investment in the LLC 2 and LLC3 projects as it did in LLC 1. Whether the second set of projects proceeds,however, is more speculative at this time than whether LLC 1 will proceed. Forbusiness reasons, A would like to unify the acquisitions in the same LLC ratherthan two different LLCs. Once again, A is contributing cash for the purpose ofproviding financing and will initially acquire a controlling interest in LLC 2and LLC 3, but it no longer will hold these indirect controlling interests onceit has realized in preferred return in LLC 1. Under these circumstances, itappears to me that the Rule 802.65 exemption should be available to exempt thesecond set of acquisitions. Please let me know if you agree

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