– Agree. K Walsh concurs.
Mr.B. Michael Verne
Federal Trade Commission
Bureau of Competition
Premerger Notification Office
600 Pennsylvania Avenue, NW
Washington, DC 20580
Thisletter seeks to confirm that an acquisition of stock, as described below, wouldnot be a reportable transaction under the Hart-Scott-Rodino Act of 1976("HSR Act"). The details of the proposed transaction follow.
Pursuantto a letter of intent, Acquiring Entity will acquire 100% of the issued andoutstanding stock of Target, a privately held S corporation. The stock ofTarget consists of one class of voting shares (stock that carries voting rightswith regard to the election of directors), which are held by a singleshareholder and one class of nonvoting shares (stock that does not have votingrights with regard to the election of directors), which are held by a number ofdifferent shareholders, but not by the holder of the voting shares. The vastmajority of the shares of Target are non-voting shares. Please assume forpurposes of this analysis that the Size of the Parties Test is met.
Theallocation of the purchase price for 100% of Target's stock is determined andbeing made pursuant to a shareholder agreement which was entered into severalyears ago and which requires that the purchase price be allocated equallyacross shares regardless of whether the share is a voting of non-votingsecurity. Thus, while the total payment to be made by Acquiring Entity forTarget's stock is greater than $68.2 million (the amount that must be exceededto meet the HSR Size of the Transaction Test), the portion of the purchaseprice payment allocated to the voting shares pursuant to the shareholderagreement is an amount well below $68.2 million.
Theabove-referenced shareholder agreement which allocates consideration for thepurchase of all shares was drafted and effectuated several years ago for taxreasons and as a means of estate planning. In other words, the allocation ofconsideration between voting and non-voting shares was not structured forpurposes related to potential obligations under the HSR Act.
Basedupon the foregoing scenario, we have concluded as follows:
(1)Any consideration for the non-voting shares of Target is not included in theHSR valuation as the acquisition of non-voting securities is HSR exemptregardless of the value (see, e.g., http://www.ftc.gov/bc/hsr/informal/opinions/0709007.htm);
(2) Because the purchase price will be distributedon a per share basis (pursuant to the shareholder agreement), the purchaseprice of the voting securities is determined for HSR purposes;
(3)The HSR analysis is not impacted by whether a single shareholder currentlyholds all the voting and some of the non-voting shares of Target, or ifmultiple shareholders of Target currently hold the voting and/or non-votingshares of Target; and
(4)This transaction will not be regarded as a transaction or device for avoidanceunder 16 C.F.R. 801.90.
Assumingthe above conclusions are accurate, it appears the transaction would not bereportable under the HSR Act. Please advise if this does not accurately reflectthe current position of the Premerger Notification Office. Should you have anyquestions regarding the above, please do not hesitate to contact me.