No written comments
(redacted) May 23, 1984 (redacted)
Writers Direct Dial No. (Redacted)
Dana Abrahamsen, Esq.
Federal Trade Commission
Permerger Notification Office
7th and Pennsylvania Avenue
Washington, D.C. 20580
Dear Mr. Abrahamsen:
This is to confirm our conversation of May 27, 1984, regarding the following interpretation of the Federal Trade Commissions Premerger Rules pursuant to the Hart-Scott-Rodino Act. Of course, the Premerger Rules will provide that an asset acquisition is valued at the greater of acquisition price (equaling all consideration for the assets, including liabilities assumed), if determined, and fair market value. Both of the following interpretations concern calculation of the acquisition price of assets to be acquired pursuant to Permerger Rule 801.10, based, in part, on the value of certain liabilities to be assumed in connection therewith:
1. Company A is purchasing assets from Company B. As part of the asset purchase agreement, Company A has agreed to assume an employment contract to which Company B is a party. Thus, Company A will retain the employee covered by this contract and make payments to that employee under the contract. You explained that Company As agreement to assume such a contract does not constitute part of the acquisition price under the Hart-Scott-Rodino Act. Since Company A is gaining the benefits of the employees services as well as the obligation to pay him for those services, the assumption is not viewed by the Federal Trade Commission as part of the consideration for the assets acquired by Company A, and, therefore, is not part of the acquisition price.
2. Under the same fact situation as presented above, Company A has also agreed to assume certain contingent liabilities of Company B as part of the consideration for the assets it is acquiring. Of course, since these liabilities are contingent, they do not possess a definite value. Company A can only estimate the value of these liabilities.
You indicated that the following two principles apply to any valuation of these liabilities. First, the fact that these contingent liabilities do not have definite value as of the date of the transaction means that the acquisition price is not determined within the meaning of Premerger Rule 801.10(b). For this reason, pursuant to Rule 801.10(b), the size of the transaction is calculated based upon the good faith estimate by Company As Board of Director (or by persons to whom the duty of making such estimate is delegated) of the fair market value of the assets being acquired y Company A.
Alternatively, if one were to argue (contrary to your statements) that the acquisition price must still be calculated in this situation, you explained that the contingent liability should be valued according to Company As best good faith estimate thereof. Therefore, the applicable figure for the acquisition price in this transaction would include such good faith estimate. The size of the transaction would then equal the greater of Company As good faith estimate of the fair market value of the assets acquired or the acquisition price.
If the foregoing does not comport with your views, please notify me by May 29. If I do not receive any notification by that date, I will assume that the foregoing represents your views of the proper interpretation of the Hart-Scott-Rodino Act and Premerger Notification Rules under these facts.