–Agree - see informal Interpretation 9804011. KW concurs.
Sent: Friday, February 24, 2012 3:05PM
To: Verne,B. Michael; Walsh, Kathryn
Subject: HSR treatment of fiduciary cash, receivables, and payables
Mike and Kate:
A client of ours in theinsurance industry is contemplating the acquisition of a "managing generalagent," which can be described as an insurance intermediary that offersspecialized insurance policies on behalf of insurance carriers for a range ofclients, including principally wholesale and retail brokers. In its capacity asan insurance intermediary, the target collects premiums from insureds, fromother insurance intermediaries, and/or from premium finance companies. Afterdeducting commissions, the net premium is remitted to the insurer or otherinsurance intermediary. The target is not a principal to the related insurancecontracts under which the right to receive premiums or the right of lossreimbursement arises. Thus, fiduciary cash, uncollected fiduciary receivables,and related fiduciary payables (the net of which will always equal zero) arenot really assets and liabilities of the Company.
When one looks at thetarget's balance sheet, however, one finds -contrary to the way many publiccompanies in the industry report -offsetting "asset" (Le., /leash inbanks" and "accounts receivable'/) and "liability(ire., I(accounts payable") entries reflecting these fiduciary activities.This fact would be of no consequence from an HSR perspective if thecontemplated acquisition were structured as a stock purchase, because theacquisition price would be considerably below the size-of-transactionthreshold. If the parties instead were to structure the acquisition as an assetpurchase, however, and if the "accounts payable" were required to betreated as assumed "liabilities" and counted as part of the considerationfor the target's assets, then the size-of-transaction threshold might beexceeded.
Our research has turnedup one informal staff opinion (No. 9201003) that appears to have involved asimilar business and that supports the view that the fiduciary cash anduncollected fiduciary receivables on the target's balance sheet need not becounted among the assets of the target for HSR purposes and, correspondingly,that the offsetting fiduciary payables need not be counted among itsliabilities. Given the passage of 20 years, though, we thought we shouldconfirm that this opinion aligns with the staff's current views. Would youplease let me know whether it does?