1202004 Informal Interpretation

Date:
Rule:
Form Item 6(c)(ii)
Staff:
Michael Verne
Response/Comments:

  – Agree – NEWCO has no associates. KW concurs

Question

From:

(Redacted)

Sent:

Thursday, February 09, 2012 4:50 PM

To:

Verne, B. Michael

Subject:

Associates question

Hi Mike,

I would like to confirmmy understanding regarding the associates analysis for a Newco, which will beits own UPE, acquiring a target.

Two PE fund groups, GroupA and Group B, will invest in a Newco which will in turn acquire the target.Assume that the investments will be made by a handful of LPs from each of GroupA and Group B. Assume that each LP is its own UPE but all Group A funds aremanaged by the same GP A and all Group funds are managed by the same GP B. (Inthis case, if one LP A were the UPE of Newco, GP A would clearly be anassociate). The Group A and Group B funds, in the aggregate, will each invest50/50. The Newco will be set up as either a corporation or LLC but, ineither case, there will be a board (or board-like entity) and neither Group Anor Group B will have the right to appoint 50% or more of the board. Decisionsof the board, including further investment decisions of Newco, willrequire approval of at least one director designated by each of Group A andGroup B.

Your opinion belowsuggests that, in such a case, Newco would have no associates.

http://www.ftc.govlbc/hsr/informal/opinions/1107008.htm

Do you agree?

From:

(Redacted)

Sent:

Thursday, July 28, 2011 2:20 PM

To:

Verne, B. Michael

Subject:

Associates Questions

Hi Mr. Verne,

I participated in the Ropesweb-discussion (which was very helpful) and I have a couple of follow upquestions:

1. I asked this question on the Q&A, but didn't feelthat it was completely understood, so I would appreciate your thoughts on it-one fund holds 49% of Company X; an Associate (another sister fund) also holds2% of Company X. If NAICS overlap exists with respect to Company X and thetarget/seller, do you disclose under Item 6 (c)(ii) (J think, per theinstructions, it would be "none"), Item 7(a) (per the instructions,again "none"), Item 7(b)(ii) and 7(d) (per the instructions, I think"none" -I would think a less than 5% holding of an Associate wouldnot be an Associate, so, would not be subject to these items). If this is thecase, no disclosure of 50%+ holding would result (no different than the oldform), nor will there be any disclosure of the Associate's holdings (sinceunder 5%) in the Acquiring Fund's identical holdings (only the Acquiring Fund'sdisclosure under 6(c)(i), setting forth a noncontrolling 49% interest -so, noadditional disclosure of the 2% holdings results). Is this correct -or do weneed to disclose somewhere that the Sponsor holds a controlling interest ofCompany X via multiple sister funds?

2. I was confused about the Club Holding Corp. discussion(that the new form results in greater disclosure of the Club member sponsorsholdings) -if there is no Sponsor acquiring more than 50% in the aggregate (viamultiple sister funds) (Le., 30% Sponsor X, 40% Sponsor V, 30% Sponsor Z) -I amnot sure that there would be any more disclosure than under the old form (Le.,just the item 6(b) information, which existed in the old form). In addition, ina 50/50 deal (with a lot of sister funds for each Sponsor), I guess theimportant question is whether the new Club Holding Corp. has an investmentmanager (to go down to the Associates of the investment manager). If that isthe case, I suppose you could have 2 Sponsors with sister funds aggregating to50%, without the requirement of disclosure of control in subsequent HSR filingsfor a non-investment managing Sponsor, even if it has 50% (i.e., 2 Sponsors, 50/50(when taking into account the multiple sister funds each has), with onlyone (or none) of the Sponsor being the investment manager). Also, what if thereis no "investment manager" - the Club Holding Corp. has 1 directoreach appointed by the 2 sponsors, but with no investment manager contract.

I would appreciate yourthoughts on these two questions.

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.

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