1210004 Informal Interpretation

Date:
Rule:
801.1(b)
Staff:
Michael Verne
Response/Comments:

  - Actually, there are three separate UPEs, so still not reportable. The UPE of LLC1 is the GRAT, not individual A. Having the right to appoint successor trustees does not on its own confer control of the GRAT. A does control LP by holding a 51 % interest. The Trust is not controlled by A, so it controls LLC2.  K Walsh concurs.

Question

From:

(Redacted)

Sent:

Tuesday, October 02, 2012 7:03 PM

To:

Verne, B. Michael

Cc:

Berg, Karen E.; Walsh, Kathryn

Subject:

Question on UPE

Mr.Verne:

Ihave a question regarding determination of UPEs in a transaction. Acquirer isbuying a business operated by three related entities: two limited liabilitycompanies (LLC1 and LLC2) and a limited partnership (LP). As presentlystructured, the acquisition price for the equity interest in all three entitiesexceeds $68.2 million. We have determined that the parties meet the size ofpersons test. If all three entities have the same UPE, the transaction isreportable. However, as set forth in greater detail below, we believe thatwhile LLC1 and the LP share a UPE, LLC2 has a different UPE. As the amount ofthe purchase price properly allocated to LLC1 and LP, and the amount of thepurchase price properly allocated to LLC2, is each less than $68.2 million, webelieve the transaction to be non-reportable.

90%of the equity interest in LLC1 is owned by a GRAT established by Individual A.While the GRAT is irrevocable, Individual A is the trustee of the GRAT and hasthe power to appoint successor trustees. Thus, Individual A controls LLC1.801.1(b)(2). In addition, Individual A owns 51% of the equity interest in theLP and thus controls the LP, 801.1(b)(1 )(ii). Accordingly, Individual A is theUPE of both LLC1 and the LP.

90%of the equity interest in LLC2 is owned by a separate trust established byIndividual A. The trust is irrevocable. Individual A is not trustee of thetrust, nor does Individual A have the right to appoint any trustees of thetrust. Individual A does not have a reversionary interest in the trust, butdoes have the right, without the approval of the trustee, to acquire orreacquire the principal of the trust by substituting other property ofequivalent value. We have determined that this right of substitution is not areversionary interest under 801.1(b)(2) and that the trustee (who has the rightto name a successor trustee or trustees) controls the trust and thus controlsLLC2. We would like to know if you agree with this analysis.

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