February 4, 1983
Sandra Vidas, Esquire
Premerger Notification Office
Federal Trade Commission
7th and Pennsylvania Ave., N.W.
Washington, D.C. 20580
Dear Mrs. Vidas:
This letter will summarize the telephone conversations
we had on February 2, 1983, concerning whether a certain
individual meets the size person test for the premerger
notification filing requirements under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976. The following hypo-
thetical was posed to you in considering whether, for
filing purposes, the individual met the size-of-person test.
Mr. Smith is the ultimate parent entity of ABC Co., a
company involved in the acquisition of another company which
holds over $100 million in total assets. Mr. Smith also
controls Corporation A. Corporation A is the only General
Partner in Partnership A. Partnership A has approximately a
70% controlling interest in Corporation B of 5.6%. The
issue raised concerns which assets would be attributed to
Mr. Smith personally.
You responded that the assets of Corporation A would be
attributable to Mr. Smith because he controls the company.
However, with respect to Partnership a, you stated that
Partnership A is its own ultimate parent entity and there-
fore, neither its assets nor the assets of any entity which
it controls (i.e. Corporation B) can be directly attributable
to Mr. Smith.
Rather, you explained the investment value in Partner-
ship a to be attributed to Mr. Smith would equal the amount
carried on Corporation As regularly prepared Balance Sheet
as the Investment Asset value for that entity. You further
stated that assets of Corporation B attributed to Partnership
A (because of the partnerships controlling interest in Cor-
poration B) would not be attributable through Partnership A
to Corporation A for Mr. Smith.
With respect to Mr. Smiths personal investment assets,
voting securities, and income-producing property, you were
informed that he does not regularly prepare personal financial
statements. We then asked you the question whether he would
have to value his personal assets, for purposes of determining
whether he met the size-of-person test, at cost or fair
market value. You stated that because Mr. Smith does not
regularly prepare personal financial statement, we would
need to look at the regularly prepared financial statements
of the companies he controls to determine the proper method
of evaluation for his personal assets. Looking to the
regularly prepared financial statements of Corporation A,
the investment asset appear at cost and since Mr. Smith
controls Corporation A, you informed us that this would be
deemed to be a proper method of valuation. Therefore, for
purposes of determine the value of his investment holdings,
Mr. Smith could use a cost basis.
Finally, we addressed the formation of ABC Co, which is
to be funded with $1 million in capital and $34 million in
debt. You responded that although the newly-formed corpor-
ation will have $35 million in cash at the time the acquisition
takes place, $34 million will be in loans secured by another
companys assets. Therefore, this company will be seen as
only having $1 million in assets by the Federal Trade
When we applied, with you, the responses recited above
to Mr. Smiths assets, we concluded that he does not meet
the size of person test set forth in 7A of the Clayton Act
and therefore no premerger notification statement need be
filed by him or by ABC Co.