Question
October 15, 1991
Patrick Sharp
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th & Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580
Re: Premerger Notification Rule 801.21
Dear Mr. Sharp:
This letter is to confirm my understanding, based on our telephone conversation of October 11, 1991, that the Commissions staff would apply Premerger Notification Rule 801.21 (16 C.F.R. 801.21) in the manner described below to the transaction described below. It is my understanding that Rule 801.21 would apply as described below for the purpose of determining whether the value of the assets to be acquired exceed the $15 million premerger notification threshold set forth in 7A(a)(3) of the Hart-Scott-Rodino Act (the Act) (15 U.S.C. 18(a)(3) and Rule 802.20 (15 C.F.R. 802.20).
Our client, an insurance holding company (Buyer), is considering acquiring certain assets of a failing insurance company (Seller)/ Buyer has total assets in excess of $100 million, and Seller has total assets in excess of $10 million. The assets to be acquired consist of Sellers rights under a specified package of insurance policies (the Policies), [note 1] outstanding loans to policyholders totalling $1.8 million (the P0;icy Loans) and municipal bonds and other marketable securities having a value on Sellers book of $39.2 million (the Securities). The purchase price consists of $4.5 million in cash and the assumption of all liabilities under the Policies. The Seller has reserved $41 million on its books for the liabilities associated with the Policies.
Under the basic minimum size-of-transaction test established by 7AA(a)(3) of the Act, read in conjunction with Rule 802.20, notification is required if, as a result of the acquisition, the acquiring person would hold assets of the acquired person values at more than $15 million. However, Rule 801.21 provides that the assets of the acquired person do not include, among other things, voting or nonvoting securities or bonds owned by the acquired person and issued by a third party.
According to Rule 801.10(b) and (c)(3), the value of the acquired assets is equal tot he greater of the fair market value (determined by the board of directors of the ultimate parent entity of the acquiring person within 60 days of the filing under the Act) or the acquisition Price. As discussed above, the acquired assets consist of the Policies and the Policy Loans. The Buyer has advised us that it believes $6.3 million is the fair market value of these assets.
Under Rule 801.10(c)(2), the acquisition price is equal to the value of all consideration for the assets to be acquired. Since the sum of the values of the Policy Loans ($1.8 million) and the [note 2] Securities ($39.2 million) exactly equals the amount that Seller has reserved for the liabilities to be assumed by the Buyer, it appears that the remaining consideration, $4.5 million in cash, should be considered the value of the Policies. The value of the Policy Loans appears to be $1.8 million. In other words, although the total consideration equals $35.4 million (cash plus assumed liabilities), only $6.3 million appears properly allocable to the acquired assets other than the Securities. [note 3]
Therefore, the proposed transaction is not subject to the notification requirements of the Act because the Buyer will hold assets of the Seller (the Policies and the Policy Loans) values at only $6.3 million as a result of the transaction.
Please contact me as soon as possible at the direct-dial number listed above if this letter does not accurately reflect our conversation. Thank you for your valuable assistance in this matter.
Sincerely,
(redacted)
(redacted)