Question
(redacted)
July 26, 1988
Dear Mr. Kaplan:
I write to confirm our telephone conversation today, concerning the reportablilty under the Hart-Scott-Rodino Antitrust Improvements Act of a transaction which I outlined as follows:
A group of investors consisting of individuals in management along with one outside entity have formed a new corporation (redacted) for the purpose of acquiring 100% of the voting securities of Company (a $100 million person). (Redacted) has no 50% shareholder. The acquisition is to be accomplished in tow stages. First, (redacted) will make a cash tender offer for Company shares which, it can be assumed, will result in (redacted) acquiring control of Company. Sufficient financing has been arranged to allow (redacted) to buy the tendered shares. At the second stage, (redacted) and Company will merge, and any untendered shares will be cashed out. At this point, the surviving entity will borrow funds substantially in excess of those needed to finance the acquisition of Company; these amounts will be well in excess of $10 million and will not be borrowed until the closing of the merger.
We understand that the acquisition of Company by (redacted) no reportable because, pursuant to 801.40, the question we discussed is whether (redacted) has at least $10 million in assets valued according to 801.40(c). You explained that for purposes of 801.40(c)(1), the full face value of financing for which agreements have been secured is not included in valuing the assets of the new corporation. Rather, the parties are to estimate the economic value of having secured those credit agreements. Assuming that the financing is at market rates and that there are no other unusual circumstances, you pointed out that it si highly unlikely that this value would approach $10 million. Assuming this to be the case, the requirements of 801.40(b) are not met and the formation of (redacted) not reportable.
I would appreciate your letting me know if this is contrary to you recollection of our conversation.
Thank you for your assistance.
Sincerely,
(Redacted)
Wayne Kaplan
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th & Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580
VIA FEDERAL EXPRESS