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Date
Rule
801.1(c)
Staff
Michael Verne
Response/Comments
1. We are inclined to go with the 2005 interpretation. It makes sense to us to attribute 1/3 to each of the grantors since they each get 1/3 of the income of the revocable trust. 2. We agree with this analysis. Person 1 's holdings of X, Y and Z and Person 2's holdings of X and Y should be treated as one $70 million transaction. You don't need to do two forms if you break out the relevant portions, i.e., "as to Person 1 and as to Person 2". Only one filing fee is required. 3. No -the value is the full value of Target X, including the value of Sub X. The answer would change if Target X had no US assets or sales, because the transaction would be exempt under §802.4.

Question

From:

(Redacted)

Sent:

Monday, May 23, 2011 2:35 PM

To:

Verne, B. Michael

Subject: HSR Questions

Dear Mike,

We are analyzing a series of relatedtransactions to see if an HSR filing is required, and if it is, whether we needto submit one or two HSR Premerger Notification Forms for the two acquiredpersons involved in the transaction. I have several questions regarding theapplication of the HSR Regulations, which I set forth by topic in threesections below.

I. Determination of Percentage ofVoting Securities Held By Grantors of a Revocable Trust

Some of the shares in the acquiredentities are held through a revocable trust (the "Trust"). The trusthas three grantors (Persons 1, 2, and 3), which are all adult siblings. Eachgrantor receives equal amounts (i.e., one-third) of the net income earnedfrom the property of the Trust (e.g., shareholdings in the companiessubject to the acquisition). Upon the death of a grantor, the income of thatgrantor will be paid per stirpes to the descendant of that grantor.

Interpretation A: My understanding of Section 801.1(c)(4) is that allof the holdings attributable to the Trust are attributable to each grantor. Forexample, if the Trust holds 45 percent of the voting securities of Target X andPersons 1 and 2 each separately (and directly) hold 10 percent of the votingsecurities of Target X, then Persons 1 and 2 would each hold 55 percent of thevoting securities of Target X (for HSR purposes) and would therefore each beUPEs of Target X. I believe one of my colleagues confirmed this interpretationof the regulations with you fairly recently.

Interpretation B: However, Informal Interpretation #0506010 providesthat each Person would be deemed to hold 1/3 of the voting securities ofthe trust. See http://www.ftc.gov/bc/hsr/informal/opinions/0506010.htm. Usingthe example above, each Person 1 and Person 2 would hold for HSR purposes 25percent of Target X ((1/3 x 45 percent) + 10 percent =15 percent + 10percent =25 percent).

Please confirm which interpretationabove is correct: A or B?

II. Aggregation of VotingSecurities

Company A proposes to acquire Target X,Target Y, and Target Z for $70 million. Person 1 is the UPE of Target X, TargetY, and Target Z. Person 2 is the UPE of Target X and Target Y (but not Target Zbecause Person 2 holds less than 50 percent of the voting securities in TargetZ). The acquisition value of Person 1 's shares is $40 million and Person 2'sshares is $30 million.

My question is whether Company A'sacquisition of (a) Person 1 's voting securities in Target X, Target Y, and TargetZ and (b) Person 2's voting securities in Target X and Target Yare treated asone transaction. My understanding is that they would be treated as oneacquisition for the reasons stated below. Seehttp://www.ftc.gov/bc/hsr/informal/opinions/0404015.htm. Under 801.14(a),Person 1 's voting securities in Target X, Target Y, and Target Z would beaggregated, and Person 2's voting securities in Target X and Target Y would beaggregated. Under 801.13(a), the voting securities of each target company thatis part of the acquisition would be aggregated (e.g., Person 1 andPerson 2's voting securities in Target X would be aggregated). Taken together,all of voting securities to be acquired by Company A from Person 1 and Person 2in the target companies are aggregated and would be treated as one acquisitionfor HSR purposes.

Assuming this is correct, an HSR filingis required because the size-of-persons test and size-of-transaction test(greater than $66 million) are met for this transaction. Please confirm that weneed to prepare two separate HSR filings for Person 1 and Person 2 and not acombined form for both parties. Please also confirm that only one filing fee isrequired. This is not a Section 803.9(a) situation because there are twoacquired parties that are involved in the acquisition and not two acquiringparties.

III. Foreign Holdings

Target X is a U.S. company with assetsand sales in the United States. Target X owns 99 percent of the votingsecurities in a non-U.S. company, Subsidy X. Subsidy X has no sales in or intothe United States and owns no assets in the United States. Can we exempt thevalue of Subsidy X (even though it is an indirect acquisition by Company Athrough Target X) in determining the value of the transaction?

If we cannot exempt the value of SubsidyX in determining the value of the transaction, would the answer change ifTarget X was only a U.S.-incorporated holding company with no assets or salesin the Untied States?

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

Learn more about Informal Interpretations.