1205016 Informal Interpretation

Date:
Rule:
802.4
Staff:
Michael Verne
Response/Comments:

  - I agree with your analysis The buyer needs to take into account the intangibles when doing a FMV. The acquisition is of an ongoing business, so these intangibles add value to the business.  K Walsh concurs.

Question

From:

(redacted)

Sent:

Tuesday, May 22, 2012 9:43 AM

To:

Verne, B. Michael; Walsh, Kathryn

Subject:

FW: HSR Exemption

Mikeand I(ate,

Iam working on a transaction where the value of target non-exempt assets may bebelow $68.2 million, but that in part depends on how I apply the advice yourecently gave below. See highlighted text, copied here: Y does not value thenon-exempt assets as part of an ongoing business enterprise.

Assumethat Buyer is acquiring 100% of target voting shares for $200 million. Inapplying 802.4 and looking down at the assets, there are certain exempt assetsI ignore - e.g., cash and equivalents. There are few fixed assets, say theytotal $20 million (assume book and fair market are the same here). Assume thisis an e commerce company as in the below example with current low revenue butlots of "potential" It is the intangibles that are giving me troublein the context of your advice. These include the value of customerrelationships, brand loyalty, trademarks and supplier relationships. On thebooks assume these are valued at $20 million, so that's $40 million, less than$68.2 million. But the test is fair market not book, and on that basis I assumethey have a value close to $160 mm on the simplistic assumption that this iswhat Buyer is paying $200 million for. However, if Buyer takes your adviceliterally, they might conclude that these intangibles have little value becausetheir value is in the context of this ongoing business. Broken up and soldseparately outside of the context of this ongoing business, the intangibleslikely have very little value, and hence no filing for a $200 millionacquisition.

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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