Question
January 13, 1995
BY HAND
Victor L. Cohen
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th & Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580
Re: Applicability of the Investment Exemption
Dear Mr. Cohen:
The purpose of this letter is to confirm the details of our telephone conversation of January 9, 1995 among you, (redacted) and me concerning the applicability of the investment exemption set forth in Section 7A(c) (9) of the Clayton Act, 15 U.S.C. 18a (c) (9), and 16 C.F.R. 802.9.
The circumstance (redacted) and I have described to you were as follows: A and B are corporations that have recently formed a joint venture (JV) to engage in certain business activities in a foreign country. Corporation A holds a 40% interest in the JV, and Corporation B holds the remaining 60% interest. B holds a majority of the seats on JVs governing board, though A has minority representation on the board, plus a veto right with respect to certain decisions of the board.
A and B are also co-venturers (along with other parties) in several limited partnerships. In each of those situations, both A and B are limited partners. In one case, As limited partnership interest is large enough to make it the ultimate parent entity of the partnership.
Additionally, A and B are co-investors in a company (C) in the following proportions: B and its affiliates own approximately 82% of C, and A owns the remaining 18%. B and its affiliates hold a majority of the seats on Cs governing board. A has minority representation on the board of C, plus a veto right with respect to certain decisions of the board.
B now wishes to purchase certain voting securities of A. The voting securities to be acquired by B will represent approximate 0.01% of the total outstanding voting securities of A. The value of those voting securities will be in excess of $15 million. B has no intention of participating in the formulation, determination or direction of the basic business decisions of A. B has no director on As board and does not intend to nominate any such director. B does not intend to solicit proxies from As stockholders or to propose any corporate action requiring the approval of As shareholders. In short, B intends to hold the voting securities of A as a passive investor.
We inquire of you whether Bs proposed acquisition of voting securities of A is exempt pursuant to the investment exemption. In particular, to the extent that A and B are co-venturers, we asked whether this fact would negate the availability of the investment exemption.
You informed us that a person acquiring voting securities does not lose its entitlement to rely on the investment exemption solely on the ground that the acquiring person is a co-venturer with the acquired person. So long as the circumstances surrounding Bs acquisition of the voting securities of A indicate that B intends to be a passive investor, B should be able to rely on the 7A(c) (9) exemption. In this regard, you noted that the percentage of As voting securities to be acquired by B is minimal.
On the basis of our discussion, (redacted) and I intend to advise our respective clients accordingly. If this letter does not accurately reflect your advice to us, I would be grateful if you would contact me at your earliest convenience. Thank you for your assistance.
Very truly yours,
(Redacted)