January 31, 1983
Mary Ann Dunaitis, Esq.
Premerger Notification Office
Federal Trade Commission
Washington, D.C. 20580
Dear Ms. Dunaitis:
This will confirm our telephone conversation of
January 26, 1983, in which we discussed the proper valuation
of securities purchased in stock-exchange transactions.
I related to you the following hypothetical facts:
A person meeting the size of person criteria purchases
securities in company X beginning on December 1, 1982. By
January 26, 1983 he has purchased 500,000 shares. During the
45-day period prior to January 26, 1983 the stocks lowest
closing quotation was $20 (occurring on December 20). The
stock now sells for $30. As of January 26, the acquiring
person may purchase up to 166,666 shares, since the stock
previously held is valued at $10 million and the stated
number of shares, at $30 each, is less than $5 million.
This, the $15 million threshold would not be crossed.1 As of
January 27, however, additional shares may be purchased, the
acquiring person would hold 666,666 shares, all of which
would be valued at $20, and could purchase another $1,666,679
of stock (valued at $30, assuming price held a steady). This
process of purchasing and revaluing may continue until the
$15 million or 15% threshold is crossed.
1. We assume throughout that the 15% threshold will not be
You confirmed the correctness of this interpre-
tation of Rules 801.10 and 801.13. We thank you for your