1606002 Informal Interpretation

Date:

Tags:

Rule:
801.40; 801.50; 801.2
Staff:
Kate Walsh
Response/Comments:

In determining whether a transaction is an acquisition or a formation, we look at what each party is contributing.  When one party is only contributing cash, we treat that as an acquisition. UPDATE March 23, 2017: To clarify, where one party is only contributing cash, and that cash is not staying in the JV, but is being paid out to another contributing party, we treat it as an acquisition. Contact the PNO if you are unsure about how to file.  

Question

From: Walsh, Kathryn E.
Sent: Thursday, June 02, 2016 9:19 AM
To: [REDACTED]; Whitehead, Nora; Gillis, Diana L.
Subject: RE: Acquisition of Controlling Interest in Newco LLC

In determining whether a transaction is an acquisition or a formation, we look at what each party is contributing.  When one party is only contributing cash, we treat that as an acquisition.  So, here B is acquiring assets from A.

From: [REDACTED]
Sent: Tuesday, May 31, 2016 7:38 PM
To: Walsh, Kathryn E.; Whitehead, Nora; Gillis, Diana L.
Subject: Acquisition of Controlling Interest in Newco LLC

Hi Kate, Nora and Diana,

I hope everyone had a great holiday weekend.  In this transaction A and B are each committing to invest up to $400 million in Newco LLC, and A and B will each own 50% of Newco LLC at closing.  At closing, A will contribute:  i.) a plant valued at $150 million, and ii.) a plant under construction currently valued at $50 million.  B will contribute $100 million cash which will be distributed to A as a return of capital at closing.    Subsequent to the initial capitalization, capital commitments for the remaining spend on the plant under construction are payable 50-50 by each of A and B and are not subject to board-approved capital calls.  The remaining capital commitments are payable pro rata as called by the board from time to time when needed to finance Newco’s operations.  Any portion of a Member’s capital commitment that has not been called by the board within the 4-year period following closing will expire, unless extended at the discretion of the Member.  Can you confirm whether the transaction is considered an acquisition by B of 50% of the LLC from A (rather than as a formation of a joint venture)?

Many thanks,

[REDACTED]

 

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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