Question
BY HAND
Mr. Dana Abrahamsen, Esq.
Premerger Notification Office
Bureau of Competition
Federal Trade Commission, Room 303
Washington, D.C. 20580
Dear Mr. Abrahamsen :
This letter request confirmation of our
conclusion that the parties to a proposed merger
(described below) need not file premerger notification
forms or otherwise comply with the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act (the Act)
and the regulations promulgated thereunder.
Facts
Our client, Corporation A, is a publicly-
held company that recently entered into an agreement
ti merge with an newly-formed company, Corporation B.
None of the shareholders of Corporation a own 50 per-
cent or more of the outstanding common stock of
Corporation A. The merger agreement provides that
Corporation B will merge with and into Corporation A,
which will be the Surviving Corporation. Each outstanding
share of common stock of Corporation A will be converted
into a right to receive cash plus debentures of the
Surviving Corporation. Each share of common stock of
Corporation B will be converted into a newly issued
share of common stock of the Surviving Corporation.
Corporation A is engaged in commerce and, as
of September 30, 1982, the date of its last regularly
prepared balance sheet, had total assets of over $150
million. Corporation B, formed in October 1982 solely
to effect the merger, has no ongoing business activities,
and has only $30,000 of assets received by it in payment
for shares of common stock. The shareholders of
Corporation B are an investment banking firm and four
individuals, none of whom owns 50 percent or more of
the outstanding common stock of Corporation B.
Corporation b intends to borrow the considera-
tion required to effect the merger. In January 1983,
Corporation B received and accepted a commitment letter
from a bank agreeing to provide corporation B with $116
million to enable Corporation B to pay the shareholders
of Corporation A the cash to which they are entitled
pursuant to the terms of the merger agreement (approxi-
mately $66 million), to extinguish existing debt of
Corporation A (approximately $25 million), to provide
working capital for the Surviving Corporation (approxi-
mately $20 million) and to pay costs and expenses of the
merger (approximately $5 million).
Discussion
It is our conclusion that the parties to the
proposed merger are not subject to the Act and regula-
tions promulgated thereunder. A the effective time of
the merger, Corporation B will have only $30,000 of
assets other than the funds it will borrow ($116 million)
to effect the merger. It is our understanding that the
Premerger Notification Office staff has taken the
position that funds to be used as consideration for an
acquisition should be applied either towards the
calculation of whether a corporation meets the size of
the person test or the calculation of whether an
acquisition meets the size of the transaction test, but
not both, Applying the financing funds to determine
the size of the transaction leaves only $30,000 of assets
to be used when applying the size of the person test to
Corporation B. With only $30,000 of assets, Corporation
B does not meet the size of the person test (requiring
at least $10 million of assets) that would subject the
parties to the proposed merger to the provision of the
Act.
I understand that it is the practice of your
office to provide oral response to letters such as
this. I would appreciate it if you could provide me
with your response in this matter as soon as possible.
Yours very truly,
(Redacted)