Question
(redacted)
March 15, 1988
Richard Smith
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th & Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580
Dear Mr. Smith:
Per our telephone conversation of March 14, this letter will outline the facts concerning a proposed transaction and my conclusions concerning reportability under the Hart-Scott-Rodino Act and implementing regulations. I would appreciate your confirming that my conclusions concerning reportability are correct or, if they are not correct in any respect, so advising me promptly.
The parties to the transaction, A and B, are both foreign persons as defined in 801.1(e) (2) (i) (A) of the regulations because each of them has an ultimate parent entity which is a non-U.S. corporation whose principal place of business is outside the U.S. Included within A is a United States issuer ( 801.1(e) (1) (ii) with U.S. sales in excess of $100 million. Included within B is a smaller U.S. issuer whose annual sales in the United States are not known at this time. The parties meet the Acts commerce and size of person tests.
A proposes to acquire from B (1) operating assets located in a foreign country which generate greater than $15 million in sales annually to the United Sates, and (2) 100% of the stock of Bs United States issuer subsidiary. This stock is valued at less than $15 million.
As part of the consideration for the acquisition of Bs assets, A will transfer to B less than 50% of the voting securities of the United States issuer included within A. (The rest of the consideration is assumed to be cash.)
As I have analyzed the transaction, As acquisition of foreign operating assets from B is exempt from reporting under 802.51(a). This determination is based solely on the fact that the operating assets are located outside the United States. Under 802.51(a) the fact that these assets generate sales in excess of $15 million to the United States is irrelevant.
As for As acquisition of 100% of the stock of the United States issuer included within B, under 801.21(b) these voting securities are not considered assets of A. Therefore, reportability is governed by 7A(a) (3) of the Act and 802.20 of the regulations. In applying 7A(a) (3), the assets located outside the United States which A is acquiring from B are not counted since, under 801.15 (a) (2), assets the acquisition of which was exempt under, among other sections, 802.51(a) are not deemed to be held as a result of an acquisition for purposes of 7A(a) (3). Therefore, the acquisition of 100% of Bs U.S. issuer subsidiarys voting stock meets the requirements of 7A(a) (3) (A) of the statute but not 7A(a) (3) (B) ($15, 000,000 or greater value) so that 802.20 of the regulations applies. Since the acquisition of the voting securities confers control of a United States issuer (Bs subsidiary), reportability will turn on whether this issuer together with all entities which it controls has annual net sales or total assets of $25 million or more. 802.20(b).
Reportability of Bs acquisition of a non-controlling amount of voting securities of As United States issuer subsidiary is not subject to 802.51 but rather is governed by 7A(a) (3) of the statute and 802.20 of the regulations. Hence, reportability will depend first on whether B will acquire 15% or more of As subsidiarys voting securities or whether the acquired securities have a value in excess of $15,000,000. If neither condition is met, the transaction is not reportable under 7A(a) (3). If both are met, or if the second is met, the transaction is reportable. If only the first is met, 802.20(b) applies and the transaction is not reportable because it does not confer control.
I will call you later today to confirm your receipt of this letter and to determine when you will be able to give me a response.
Sincerely yours,
(redacted)
(redacted)