Question
(redacted)
March 18, 1985
HAND DELIVERY
Wayne Kaplan
Federal Trade Commission
Room 301
[indecipherable] Building
6th and Pennsylvania Ave., N.W.
Washington, D.C. 20580
Re:Interpretation of Control and Calculation of Total Assets under the Pre-Merger Notification Regulations
Dear Mr. Kaplan:
This will confirm our telephone conversation of March 15, 1985 concerning the applicability of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Section 7A of the Clayton Act, 15 U.S.C. 18a (the Act), and the regulations promulgated under the Act, 16 C.F.R. Parts 801, 802 and 803 (the Regulations), to leveraged buy-outs.
As I explained to you, the subject transaction involves the acquisition of all of the stock of a corporation engaged in the business of distributing electrical products (the Acquired Entity). Since the Acquired Entity is a second-tier subsidiary of a multi-billion dollar conglomerate, the acquired person in the subject transaction will have assets and sales in excess $100,000,000.
All of the stock in the Acquired Entity will be acquired by a corporation (the Acquiring Entity) recently formed for the purpose of effecting the subject transaction. the stock of the Acquiring Entity will be owned entirely by a recently-formed holding company (the Holding Company). Substantially all of the stock in the Holding Company will be owned by a recently-formed limited partnership (the Limited Partnership); a small percentage of the stock in the Holding Company will be offered to two individuals presently serving as executive officers of the acquired Entity. Both the sole general partner and the limited partner of the Limited Partnership will be individuals, neither of whom presently is involved in the business of distributing electrical products.
The financing for the subject transaction will be provided by two institutional lenders, who have committed to loan the acquisition funds to the Holding Company and to the surviving entity of a merger between the Acquiring Entity and the Acquired Entity.
We have determined that the subject transaction, as described above, is exempt from the filing requirements of the Act and the regulations. In part, our determination is based upon FTC staffs interpretations of certain provisions of the Regulations of which we have been advised by your, as follows:
1.We understand that, for purposes of determining the identity of the acquiring person and the acquired person in a merger or acquisition transaction, both the FTC and the Department of Justice interpret Section 801.1(b) of the Regulations such that a limited partnership cannot be controlled by another entity and therefore will always be considered the ultimate parent entity in a merger or acquisition transaciton in which the limited partnership, or an entity it controls, is involved; and
2.We understand that, for purposes of determining the total assets of the acquiring person in a merger or acquisition transaction, both the FTC and the Department of Justice will exclude from the calculation of the total assets of a newly-formed entity (e.g., an entity formed in 1985 and therefore not having any regularly prepared balance sheet or income statement) money (i.e., cash or its equivalent) contributed to or borrowed by or on behalf of the newly-formed entity and used by that entity in making one acquisition.
I would appreciate your reviewing this letter at your earliest convenience and contacting me if we are incorrect in our understanding of FTC staffs interpretations, as described above.
Thank you for your attention to this matter.
Very truly yours,
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