Question
(redacted)
November 25, 1996
CONFIDENTIAL
Mr. Victor Cohen
VIA FACSIMILE
Staff Attorney
Federal Trade Commission
Premerger Notification Office
Bureau of Competition, Room 303
Washington, D.C. 20580
Dear Mr. Cohen:
A client is contemplating restructuring before selling voting securities of a newly formed subsidiary to a third party (Buyer). The clients current corporate structure is diagramed in Exhibit 1. The individual shareholders are twenty-two (22) natural persons and no one controls Corp. A or LTD. Moreover, the individuals hold the same number of voting securities of Corp. A as they hold limited partnership units of LTD (35,710) and in the same proportion (each individual shareholder holds the same number of LP units and Corp. A voting securities). Thus, as you can see in the diagram, everything is ultimately owned by the individual shareholders, although LTD is the ultimate parent entity of LTD, Corp. A and Corp. B.
In a series of transactions which will occur on the same day, the client plans to achieve the internal corporate structure set forth in Exhibit 2. Effectively, the individual shareholders, who have not transferred any voting securities or LP units among themselves, exchange their LP units with Corp. A for additional shares of Corp. A and cash (enough to pay the taxes on the gains). Corp. A becomes the ultimate parent entity of Corp. A, Corp. B and LTD. The assets to be retained are transferred from the LTD to Corp. B. Corp. A and Corp B own all of LTD units (although Corp. A holds them all by reason of its ownership of Corp. B). In addition, Corp. A and Corp. B form Newco, a subsidiary.
The final element of the restructure involves a merger of LTD into Newco. This merger is needed to transfer licenses and permits without obtaining new authorization or consents. Once the requisite assets, licenses and permits are in Newco, Corp. A and Corp. B will sell the Newco voting securities to Buyer (we recognize that this transaction may be reportable.
We believe that the restructuring of the client (as outlined) does not present a reportable transaction (assuming the commerce test, size-of-the-person test and size-of-the-transaction test are met) based on the definition of the term person in 801.1(a) and the application of exemptions 7A(c)(3) and (10) of the Act, and 802.30, Intraperson Transaction. Fundamentally, the same shareholders own the same proportion of the same assets at the beginning and end of the restructuring and at no point do these shareholders create two separate ultimate parent entities.
Please let me know if you need additional facts or information to do your analysis and I would appreciate your calling me at (redacted) to discuss this matter at your convenience.
Very truly yours
(redacted)
[Exhibit 1 (chart) see pdf file]
[Exhibit 2 (chart) see pdf file]