Question
From: (Redacted)
Sent: Thursday, November 05, 2009 3:56 PM
To: Verne, B, Michael
Cc: (Redacted)
Subject: Joint Venture Formation
Mike,
Please call me to discuss the following factual scenario unless you agree with the analysis below and believe that no call is necessary.
A and B agree to form joint venture C, a Delaware corporation. A will: (i) contribute $40 million in cash to C in exchange for 51% of C's equity; and (ii) advance $235 million in cash to C as a loan in exchange for a note from C in the same amount. B will: (i) contribute unincorporated subsidiaries X,Y, and Z, but no cash, to C in exchange for 49% of C's equity; and (ii) issue a note to C in the amount of $275 million in exchange for the $275 million in cash C receives from A. You may assume that each of A, B, and C meet the size-of-parties test and that the loans from A to C and C to B reflect arm's length market terms.
Based on these facts, we believe that none of the parties has an HSR filing obligation.
A has no filing obligation: Under Rules 801.40, 801.10 and Informal Interpretation 111 (ABA Manual, 4th ed.), A has no filing obligation because the value of its acquisition of C's voting securities is the determined price of $40 million, which is below the minimum size-of=transaction threshold. For purposes of this analysis, the value of the loan from A to C is not included in the value of C shares acquired by A. See Interpretation 111. Because the size-of-transaction threshold is not met, the value of the assets held by the joint venture and the size-of-parties test as to A and C are not considered.
B has no filing obligation: Under Rules 801.40, 802.4 and 802.30, B has no filing obligation. The value of B's interest in C is undetermined. B may look through the acquisition of C shares to the value of C's non-exempt assets under 802.4. C's assets consist of the cash contributed by A and the assets (X, Y, and Z) contributed by 8. The assets contributed by B to C are exempt under 802.30{c) as intraperson transfers. The remaining cash in C is exempt because an acquisition of cash is not HSR reportable. Accordingly, the value of the non-exempt assets being acquired by B is $0.0, which is below the size-of-transaction (MV comment Limitation in 802.4) threshold.
Based on the above, the described transaction would be non-reportable.