1107011 Informal Interpretation

Michael Verne

– Agree.


From: (Redacted)
Sent: Tuesday, July 05, 2011 10:54AM
To: Verne, B.Michael
Subject: HSR question


I have a question aboutwhen the "acquisition price" of non-publicly traded voting securitieshas been "determined."

Assume the followingfacts:

Acquired person("Target") has issued shares of Class A Voting common stock andshares of Class B NonVoting common stock to various stockholders. Acquiringperson ("Buyer") intends to pay almost $600 million for all issuedand outstanding shares of Target. Here are the number of outstanding shares andthe dollar value assigned to them in the Stock Purchase Agreement:


Number of Shares

Dollar Value Assigned in Stock Purchase

Class A Voting Common Stock


$12.0 million

Class B Non-Voting Common Stock


$560.0 million

The same natural personsown Class A Voting Common and Class B Non-Voting Common in identicalpercentages within each class.

For convenience's sakeand at the selling stockholders' request, the parties have simply assigned the samedollar value to each share of the Class B Non-Voting Common as they haveassigned to the Class A Voting Common. Because there are far fewer shares ofClass A Voting Common issued and outstanding, this makes it appear that theClass A Voting Common, taken as a collective whole, is worth far less than theClass B NonVoting Common. However, it does not reflect the reality that to theBuyer, the Class A Voting Common is clearly worth far more than the Class BNon-Voting Common. There is a control premium that Buyer would be prepared topay for the Class A Voting Common. That control premium has not been preciselycalculated by the parties.

In my view, this is asituation where the acquisition price of non-publicly traded voting securitieshas not been "determined," even though the purchase agreementpurports to assign a value to the voting securities that looks, on the surface,lower than the basic size-of-transaction threshold. Therefore, it seems to methat Buyer has an obligation to determine the fair market value of the Class AVoting Common in good faith. Given that Buyer is prepared to pay almost $600million for what is in effect control of Target, it seems to me this should bea reportable transaction. The reality is that Buyer would not be entering intothe transaction at all if it were only going to be acquiring Class B Non-VotingCommon.

Any analysis that thistransaction is not reportable seems to me to boil down to a recipe for HSRavoidance. It is very common for closely held family businesses to issue a muchsmaller number of voting shares than nonvoting shares. If we let parties assignthe same value to voting and non-voting shares with no analysis of the controlpremium associated with the voting shares, very large transactions involving theseclosely held businesses would often require no filing. I cannot believe that isthe intention behind the valuation rules.

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