2010003 Informal Interpretation

Date:

Tags:

Rule:
7A(c)(10)
Staff:
Vesselina Musick
Response/Comments:

Confirmed.

Question

From: Musick, Vesselina


Sent: Friday, October 2, 2020 4:25:08 PM (UTC-05:00) Eastern Time (US & Canada)


To: [Redacted]


Cc: [Redacted]


Subject: RE: Section 7A(c)(10) / High-Vote & Low Vote Shares

Confirmed.

From: [Redacted]


Sent: Thursday, October 1, 2020 4:00:26 PM (UTC-05:00) Eastern Time (US & Canada)


To: [Redacted]


Subject: Section 7A(c)(10) / High-Vote & Low Vote Shares

PNO Team,

I wanted to confirm the availability of Clayton Act Section 7A(c)(10) as an exemption in a scenario involving a shareholder’s conversion of high-vote shares to low vote shares at the same time the shareholder acquires other high-vote shares.

Assume a company has two classes of shares: Common A, which is publicly-traded, and Common B, which is not publicly-traded but which can be converted to Common A at the shareholder’s request. Both Common A and Common B shares participate in the election of all company directors, but Common A shares have one vote per share, and Common B shares have 10 votes per share.

Certain Common B shareholders hold options to acquire additional Common B shares. If a Common B shareholder exercises its option to acquire additional Common B shares, but at the same time converts a sufficient number of its currently held Common B shares to Common A shares, thereby reducing its voting percentage, would the transaction be exempt under Section 7A(c)(10)?

As a very simple example, assume that there are 1000 votes available, based on there being 10 Common B shares outstanding, and 900 Common A shares, and assume all the Common B are held by a single shareholder, Shareholder X. Based on its holdings, Shareholder X’s voting percentage would be 10%. Please also assume all transaction size and size of person thresholds are met.

If Shareholder X exercised options to obtain three more Common B shares, but at the same time converted four of its current Common B to Common A shares, Shareholder X’s voting percentage would go down. After that transaction Shareholder X would have a total of nine Common B shares, and because of the conversion of the shares it already held, would also have four Common A shares. So post transaction, Shareholder X would have 94 votes, out of a total number of 1004 available votes. Shareholder X’s voting percentage would now be 94/1004, or 9.4% -- dropping just slightly.

Because the shareholder’s “per centum share of outstanding voting securities” has decreased, I think Section 7A(c)(10) exempts it from HSR notification requirements, but was hoping you can confirm.

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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