1211010 Informal Interpretation

Michael Verne

– Agree.





Friday, November 16, 2012 8:06 PM


Verne, B. Michael


Question re: pre-acquisition restructuring


Iunderstand that you're out of the office until Monday. I am in need of yourguidance and I thought it would save some time if I sent you my question inwriting, so that you'll have it waiting for you on your return.

Irepresent a family-owned business that is planning to sell a controlling staketo an outside financial investor. The company, a corporate entity (CorpA), isits own UPE, because each of its three shareholders holds less than 50% of itsvoting securities. The transaction will be structured as an acquisition of LLCinterests and will be reportable under the Act, because it will confer controlof a non-corporate entity and because the acquisition price will exceed $200million (as adjusted).

Fortax reasons the shareholders will convert CorpA, which has a value in excess of$200 million (as adjusted), into an LLC by merging it into a shell LLC(HoldLLC-2) two weeks prior to the transaction. HoldLLC-2 is included withinHoldLLC1, which is in turn included within a holding company (HoldCorp.) thatis horizontal to, and has the same ownership structure -same shareholders, sameownership percentages -as, CorpA. At the closing of the transaction, theacquiring person will acquire a controlling share of HoldLLC-l. HoldCorp. andthe acquiring person will submit notifications under the Act for thatacquisition.

Althoughstructured as a merger of CorpA into a sub of HoldCorp., in its effects thepre-transaction restructuring outlined above is more akin, I believe, to areorganization that would be exempt from the Act under Rule 802.10. The threeshareholders are simply converting a corporate entity, which they hold40/40/20, into an LLC by merging it into a shell LLC sub of a shell corporateentity, which they also hold 40/40/20. If one of the shareholders held 50% ofCorpA's stock, the restructuring would not be subject to the Act. That CorpAand HoldCorp are their own UPEs does not seem to me to be a distinctionsufficient to require a separate HSR filing for the restructuring, but that isthe question I'd like to discuss with you when you return to the office.

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