8301011 Informal Interpretation

Date:
Rule:
801.11
Staff:
Dana Abrahamsen

Question

BY HAND

Mr. Dana Abrahamsen, Esq.

Premerger Notification Office

Bureau of Competition

Federal Trade Commission, Room 303

Washington, D.C. 20580

Dear Mr. Abrahamsen :

This letter request confirmation of our

conclusion that the parties to a proposed merger

(described below) need not file premerger notification

forms or otherwise comply with the provisions of the

Hart-Scott-Rodino Antitrust Improvements Act (the Act)

and the regulations promulgated thereunder.

                           Facts

Our client, Corporation A, is a publicly-

held company that recently entered into an agreement

ti merge with an newly-formed company, Corporation B.

None of the shareholders of Corporation a own 50 per-

cent or more of the outstanding common stock of

Corporation A. The merger agreement provides that

Corporation B will merge with and into Corporation A,

which will be the Surviving Corporation. Each outstanding

share of common stock of Corporation A will be converted

into a right to receive cash plus debentures of the

Surviving Corporation. Each share of common stock of

Corporation B will be converted into a newly issued

share of common stock of the Surviving Corporation.

Corporation A is engaged in commerce and, as

of September 30, 1982, the date of its last regularly

prepared balance sheet, had total assets of over $150

million. Corporation B, formed in October 1982 solely

to effect the merger, has no ongoing business activities,

and has only $30,000 of assets received by it in payment

for shares of common stock. The shareholders of

Corporation B are an investment banking firm and four

individuals, none of whom owns 50 percent or more of

the outstanding common stock of Corporation B.

Corporation b intends to borrow the considera-

tion required to effect the merger. In January 1983,

Corporation B received and accepted a commitment letter

from a bank agreeing to provide corporation B with $116

million to enable Corporation B to pay the shareholders

of Corporation A the cash to which they are entitled

pursuant to the terms of the merger agreement (approxi-

mately $66 million), to extinguish existing debt of

Corporation A (approximately $25 million), to provide

working capital for the Surviving Corporation (approxi-

mately $20 million) and to pay costs and expenses of the

merger (approximately $5 million).

                       Discussion

It is our conclusion that the parties to the

proposed merger are not subject to the Act and regula-

tions promulgated thereunder. A the effective time of

the merger, Corporation B will have only $30,000 of

assets other than the funds it will borrow ($116 million)

to effect the merger. It is our understanding that the

Premerger Notification Office staff has taken the

position that funds to be used as consideration for an

acquisition should be applied either towards the

calculation of whether a corporation meets the size of

the person test or the calculation of whether an

acquisition meets the size of the transaction test, but

not both, Applying the financing funds to determine

the size of the transaction leaves only $30,000 of assets

to be used when applying the size of the person test to

Corporation B. With only $30,000 of assets, Corporation

B does not meet the size of the person test (requiring

at least $10 million of assets) that would subject the

parties to the proposed merger to the provision of the

Act.

I understand that it is the practice of your

office to provide oral response to letters such as

this. I would appreciate it if you could provide me

with your response in this matter as soon as possible.

Yours very truly,

(Redacted)

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