1107016 Informal Interpretation

Michael Verne

- The transaction you have described is a consolidation for HSR
purposes. See § 801.2(d) -Example 5. So, for HSR purposes, Buyer is deemed to
have acquired 100% of Target and Target is deemed to have acquired 100% of
Buyer. You say that the size of person test has been satisfied. The prong of
the transaction where Buyer is acquiring Target is exempt under § 802.4.
However, if the value of 100% of the membership interests of Buyer exceeds
$66 million and Buyer has more than $66 million in non-exempt assets, the
portion of the transaction where Target acquires Buyer would be reportable.





Tuesday, July 19, 2011 4:34 PM


Verne, B. Michael


HSR reportability of international merger transaction


I write for guidanceregarding a merger transaction between a US LLC and a Delaware corporationwhich has no US assets and negligible US sales <$10K).

Facts: We represent a U.S. LLC (Buyer) thatis essentially acquiring all the shares of a Delaware corporation (Target) in astock-for-stock merger transaction. At the end of the transaction, the ownersof Buyer will own 75% of the combined company.

The structure of thetransaction is somewhat complicated and involves several essential steps that Iwill outline below. However, as further discussed below, the form oftransaction does not seem to be dispositive given the goal of the HSRregulations (particularly Section 802.4) to apply exemptions consistentlyregardless of the form of the transaction.

Assume the size-of-personand size-of-transaction tests are met. Target's assets are located outside ofthe US and it generated less than $10,000 in U.S. royalties in its most recentfiscal year.

1. Buyer and Target will together form anew entity (New Public Company) by each contributing cash; Buyer and Targetwill then each own 50% of the outstanding common stock New Public Company.

2. Merger Sub, a Delaware corporation,will be formed as a wholly-owned subsidiary of New Public Company.

3. Each of the three owners of Buyer willcontribute all of their ownership interests in Buyer, either directly orindirectly, to the New Public Company in exchange for 75% of the shares of NewPublic Company common stock and cash.

4. Merger Sub and Target will merge, andeach share of Target common stock will be converted into a right to receive 25%of the shares of common stock of New Public Company.

5. Each of Buyer and Target will sell theshares of common stock in New Public Company referred to in step 1 to NewPublic Company for cash (which will be nominal).

At the conclusion of thetransaction, all of the prior owners of Buyer and Target will own a portion ofNew Public Company, with the former owners of Buyer owning 75% and the formerstockholders of Target owning 25%. New Public Company will own 100% of thebeneficial interests, either directly or indirectly, of Buyer, and will own100% of the shares of Target.

Question: Even if the transaction exceeds theHSR size-of-party and size-of-transaction thresholds, is the transactionnevertheless exempt from HSR filing requirements based on Sections 802.4 and802.50 of the HSR regulations?

Analysis: Section 802.50(a) provides: "Theacquisition of assets located outside the United States shall be exempt fromthe requirements of the act unless the foreign assets the acquiring personwould hold as a result of the acquisition generated sales in or into the U.S.exceeding $50 million (as adjusted) during the acquired person's most recentfiscal year."

Section 802.4(a) providesin relevant part: "An acquisition of voting securities of an issuer ornon-corporate interests in an unincorporated entity whose assets together withthose of all entities it controls consist or will consist of assets whoseacquisition is exempt from the requirements of the Act pursuant to Section 7A(c) of the Act, this part 802, or pursuant to 801.21 of this chapter, isexempt from the reporting requirements if the acquired issuer or unincorporatedentity and all entities it controls do not hold non-exempt assets with anaggregate fair market value of more than $50 million (as adjusted)."

Thus. if our client wereacquiring the assets of Target (all of which are foreign), the transactionwould be exempt under Section 802.50(a) because the assets do not generatesales in or into the US in excess of $66 million. Further, because Section802.50(a) exempts the acquisition of the assets and because Target does nothave assets in US with a value in excess of $66 million, it appears ourtransaction, as currently structured is also exempt even though it isessentially an acquisition of voting securities of a US corporation.

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.

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