8302002 Informal Interpretation

Date:
Rule:
801.11
Staff:
Sandra Vidas

Question

(redacted)

February 4, 1983

BY HAND

Sandra Vidas, Esquire
Premerger Notification Office
Federal Trade Commission
7th and Pennsylvania Ave., N.W.
Room 301
Washington, D.C. 20580

Dear Mrs. Vidas:

This letter will summarize the telephone conversations

we had on February 2, 1983, concerning whether a certain

individual meets the size person test for the premerger

notification filing requirements under the Hart-Scott-Rodino

Antitrust Improvement Act of 1976. The following hypo-

thetical was posed to you in considering whether, for

filing purposes, the individual met the size-of-person test.

Mr. Smith is the ultimate parent entity of ABC Co., a

company involved in the acquisition of another company which

holds over $100 million in total assets. Mr. Smith also

controls Corporation A. Corporation A is the only General

Partner in Partnership A. Partnership A has approximately a

70% controlling interest in Corporation B of 5.6%. The

issue raised concerns which assets would be attributed to

Mr. Smith personally.

You responded that the assets of Corporation A would be

attributable to Mr. Smith because he controls the company.

However, with respect to Partnership a, you stated that

Partnership A is its own ultimate parent entity and there-

fore, neither its assets nor the assets of any entity which

it controls (i.e. Corporation B) can be directly attributable

to Mr. Smith.

Rather, you explained the investment value in Partner-

ship a to be attributed to Mr. Smith would equal the amount

carried on Corporation As regularly prepared Balance Sheet

as the Investment Asset value for that entity. You further

stated that assets of Corporation B attributed to Partnership

A (because of the partnerships controlling interest in Cor-

poration B) would not be attributable through Partnership A

to Corporation A for Mr. Smith.

With respect to Mr. Smiths personal investment assets,

voting securities, and income-producing property, you were

informed that he does not regularly prepare personal financial

statements. We then asked you the question whether he would

have to value his personal assets, for purposes of determining

whether he met the size-of-person test, at cost or fair

market value. You stated that because Mr. Smith does not

regularly prepare personal financial statement, we would

need to look at the regularly prepared financial statements

of the companies he controls to determine the proper method

of evaluation for his personal assets. Looking to the

regularly prepared financial statements of Corporation A,

the investment asset appear at cost and since Mr. Smith

controls Corporation A, you informed us that this would be

deemed to be a proper method of valuation. Therefore, for

purposes of determine the value of his investment holdings,

Mr. Smith could use a cost basis.

Finally, we addressed the formation of ABC Co, which is

to be funded with $1 million in capital and $34 million in

debt. You responded that although the newly-formed corpor-

ation will have $35 million in cash at the time the acquisition

takes place, $34 million will be in loans secured by another

companys assets. Therefore, this company will be seen as

only having $1 million in assets by the Federal Trade

Commission.

When we applied, with you, the responses recited above

to Mr. Smiths assets, we concluded that he does not meet

the size of person test set forth in 7A of the Clayton Act

and therefore no premerger notification statement need be

filed by him or by ABC Co.

(Graphics)

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.

Learn more about Informal Interpretations.