Question
(redacted)
Mr. Andrew Scanlon
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washing ton, D.C. 20580
Re:
Dear Mr. Scanlon:
We spoke yesterday about the need for filing a premerger notification under the Hart-Scott-Rodino Act in connection with a transaction proposed by one of our clients. In order to confirm out telephone conversation, I will outline the proposed transaction and my understanding of the application of the Federal Trade Commissions Pass Through interpretation as we discussed.
Description of Transaction
The proposed transaction involves a leveraged buy out of one or more subsidiaries (the Subs) of a corporation (the Acquired Person) by certain members of the Subs management and a few unaffiliated outside investors (Collectively referred to as investors). The investors will form a new corporation (NEWCO) to acquire the Subs.
Initially at least 3 and eventually, upon completion of the proposed acquisition, over 25 individuals will own the voting shares of NEWCO and one investor will own NEWCO warrants. No Person will control NEWCO, it will be its own Ultimate Parent Entity. 1/ NEWCO will be capitalized with up to $25 million in cash and will obtain loans amounting to approximately $225 million. The sole purpose of NEWCO is to acquire the Subs and NEWCO will use all, or substantially all of its funds to acquire the Subs.
The acquired Person has annual net sales and total assets in excess of $100 million. The Subs will be acquired by NEWCO for approximately $210-$250 million.
Hart-Scott-Rodino Analysis
It is my understanding that no notification is required under the Hart-Scott-Rodino Act for the proposed transaction described above. This is because under the Federal Trade Commissions Pass-Through interpretation a transaction by a newly formed corporation is not reportable so long as the new company is its own Ultimate Parent Entity and uses its assets solely to make the acquisition of the acquired entities. Therefore, because of the Pass-Through interpretation, no notification is required at the time NEWCO is formed, and no notification is required when NEWCO acquires the Subs.
I would appreciate confirmation of my understanding as it applies to the proposed transaction. You can contact me at (redacted).
Thank you for your assistance in this matter.
Sincerely,
(redacted)
cc: (redacted)