Question
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September 9, 1986
VIA TELECOPY
Linda Heban, Esquire
Federal Trade Commission
Premerger Notification Office
6th and Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: Application of Hart-Scott-Rodino Section 7A(c)(1)
Exemption to Certain Transactions
Dear Mr. Heban:
In accordance with our prior telephone conversations, we are writing this letter to respectfully bring to the Federal Trade Commissions attention a transaction, which we believe will not require a filing under the Hart-Scott-Rodino Antitrust Improvements Act (the Act). The hypothetical transaction which we would like you to consider is as follows:
Transaction Description:
Company A (Seller) owns and operates a hotel located on an 80 acre tract of land, the majority of which is vacant and undeveloped. Seller desires to transfer and convey to Company B (Buyer) all of the real property comprising such tact. Seller and Buyer are both in the business of owning and operating hotels. Under the terms of the conveyance agreement, Seller will retain all ownership and control of the hotel and the related improvements on the real property. Simultaneous with the transfer of the real property, Seller will retain and reserve title to the hotel and related improvements and Buyer will execute a ground lease with Seller, leasing only the underlying the hotel to Seller (this transaction will not be a sale and leaseback of the hotel). The term of the ground lease will be for a one-year period and such ground lease will further provide that at the end of the one-year term, Seller will demolish the hotel and all related improvements. Buyer will at no time have any participation in or control of the operation of Sellers hotel. In this transaction, Buyer will acquire no improvements or other assets which relate to Sellers hotel or the operation thereof.
The real property to be transferred from Seller to Buyer is also subject to a Gas Station lease. Such lease is on a very small part of the transferred acreage and will expire by its own terms soon after the conveyance of the real property from Seller to Buyer. Prior to the transafer of the real property, Seller will be the lessor under the Gas Station lease. After such transfer, the Gas Station lease will have been assigned to Buyer and Buyer will be lessor thereunder. If the Gas Station lease transaction were viewed separately, its value would be less than 0.3% of the total transaction amount, far below the Size-of-the-Transaction jurisdictional requirement under the Act.
The ultimate parent entity of Seller is an estate. The ordinary course of business for this estate is to distribute assets of the estate to beneficiaries and, when circumstances require, to liquidate certain assets. Valid estate circumstances exist which would cause Sellers ultimate parent to require Seller to sell the hotel.
Discussion:
It is our view that the above-described transaction would fall within the Section 7A(c)(1) acquisitions of goods or realty transferred in the ordinary course of business exemption in that:
A. Seller will not be transferring nor will Buyer be acquiring the existing or ongoing business of the hotel. Buyer will at no time (not even for an instant) have ownership in the hotel property or the business conducted therein.
B. The sale of the real property is in the ordinary course of business of Sellers ultimate parent entity.
C. The Gas Station lease transaction should no bearing on whether the Section 7A(c)(1) exemption applies since: the transaction itself is de minimis; there are no antitrust
Additionally, Buyer will not be acquiring the business of the Gas Station, rather, the Gas Station will continue to be operated by the current lease thereof.
We Appreciate the prompt attention which you have given this matter and will be calling your shortly to discuss the transaction further.
Very truly yours,
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