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Date

Tags:

Rule
802.9
Staff
Michael Verne
Response/Comments

Agree.  This informal no longer represents the view of the PNO.   

Question

February 19, 2008

Federal Trade Commission

Premerger Notification Office

Bureau of Competition

Room 303

600 Pennsylvania Avenue, N.W.

Washington, D.C. 20580

Attn: B. Michael Verne

Dear Mr. Verne:

Thank you for speaking with us today. This letter is written to confirm your view that the following factual scenario does not preclude the application of the solely-for-the-purpose-of-investment exemption of Section 802.9 of the Premerger Notification Rules. The facts as we presented them to you are as follows:

Company A, a 50/50 joint venture between Companies B and C, plans to acquire in excess of $63.1 million of the voting securities of Company X, which will represent approximately 7 percent of Company X's outstanding voting securities. When Company A first approached Company X, it requested a seat on its board of directors as a condition to its investment. Company X refused but has agreed that Company A may have a representative at board meetings who generally may observe and obtain all of the information distributed to the board members, but who will not have a vote.

Another condition to Company A's investment is that Company X and Company A enter into a long-term supply agreement. Company X will be manufacturing a product that will be needed by Company A in its anticipated operations. The contract will have a three to five-year term. Company X represents that this contract will not constitute more than 15% of its revenues in any of the next three years. As may be inferred from the above, Company A and Company X will not be direct competitors but will be in a vertical relationship.

At this time, Company A has no intention to place a representative on Company X's board of directors, nor to offer any proposition requiring Company X shareholder action, nor to influence the basic business decisions of Company X.

Based on the above, you indicated that Company A was not precluded from claiming the exemption in Section 802.9.

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