Question
(redacted)
March 4, 1983
Mr. Andrew Scanlon
Compliance Specialist
Premerger Notification Office, Room 303
Federal Trade Commission
7th Street and Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Dear Mr. Scanlon:
As we discussed, I an writing to confirm our
telephone conversations of February 25, 1983, in which
you provided an informal opinion regarding the applica-
bility of the premerger notification provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the Act) to a contemplated leveraged buy-out of sub-
stantially all of the assets of a subsidiary corporation
by a new corporation formed for the purpose.
More specifically, the transaction I described
would involve the following: Company A is a diversified
holding company with several subsidiaries and more than
$100 million in assets and annual net sales. Certain
officers of Company B, a wholly-owned subsidiary of Com-
pany A, have proposed to purchase substantially all the
assets of Company B for a purchase price, consisting of
cash and notes, of $15 million. To effect the purchase,
the officers would form Company C, which would be the
acquiring entity. Company C would be nominally capital-
ized and would obtain a commitment from a lending bank
permitting the borrowing of approximately $12 million,
which would be used for the cash portion of the purchase
price. Simultaneously with the closing of the purchase
by Company C of the assets of Company B, Company C would
(a) effect the borrowing under the loan commitment,
(b) immediately pay over the amount borrowed to Company A
in partial payment of the purchase price and (c) issue its
notes to Company A in payment of the balance of the pur-
chase price.
We note that prior to the consummation of the
transaction, Company C would be without assets, except for
its nominal capitalization and except to the extent that
its contractual rights under the purchase agreement and
loan commitment may be deemed assets. In addition, Com-
pany C would be wholly owned by the officers mentioned
above and would not be an entity within any person meeting
the jurisdictional requirement of the Act.
As noted above, at the time of closing Company C
would receive, and immediately deliver to Company A, cash
proceeds of its borrowing under the loan commitment in an
amount greater than the jurisdictional amount set forth in
Section 7A (a) (2) of the Act. However, it is our under-
standing that the Commission staff has determined that
where the only significant assets of an acquiring company
are the cash proceeds of an loan intended to finance the
acquisition, which proceed are received by and passed
through the acquiring company simultaneously with the
acquisition, the transaction is not likely to be of anti-
trust significance and the acquiring party will not be
deemed to meet the size-of-the-parties test of Section
7A(a)(2) of the Act. Of course, following the consummation
of the transaction, any further acquisition involving the
acquiring parties (none is presently contemplated) would
have to be independently evaluated to determine the applic-
cability of the Act.
Under the facts outline above and on the basis
of the foregoing analysis, you advised that the proposed
transaction may be consummated without complying with the
notification and waiting requirements of the Act.
We request that you notify us with two weeks
of the date of this letter if the operative facts out-
lined above are inconsistent, in any material respect,
with your recollection of our February 25 telephone
discussions or if you disagree with the conclusion
arrived at or its underlying analysis.
Thank you again for your prompt assistance in
this matter.