1607004 Informal Interpretation

[REDACTED]

If there is a reasonable basis for estimating the contingent portion(s) of the consideration, then the acquisition price can be determined.  If, however, the contingent portion(s) is/are too speculative, then the buyer must determine the FMV.  See PNPM 54, 55.   The mark-up should not be counted as additional consideration.

Best regards,

Kristin

 _______________________________

Kristin Shaffer

Attorney

Premerger Notification Office

Federal Trade Commission

202-326-3434 | kshaffer@ftc.gov

From: [REDACTED]
Sent: Tuesday, July 12, 2016 4:21 PM
To: Walsh, Kathryn E.
Cc: [REDACTED]
Subject: RE: HSR Question

Hi Kate,

I have a question as to how to value a potential asset transaction. Assume that company A is selling its assets (regulatory files, applications and approvals,  IP, including technology know-how and specific trademarks, tradenames and goodwill) for a non-patented product (the "Product") to company B. Company B will pay as consideration $10m upfront, a contingent $10 milestone payment and royalties based on worldwide sales for 10 years. In addition, for 4 years, company A will act as a toll manufacturer of the Product while company B completes technology transfer and regulatory approvals. In addition for 4 years, Company B will purchase a related product from  company A. Company B will pay company A a 15% mark-up on its COGS for the toll manufacturing and the other product.

1. As to the $10m upfront, the $10 milestone payment and royalties, I understand that this consideration is "undetermined" and the buyer must make a good faith valuation 60 days before filing or closing.
2. My question is whether the 15% mark-up for COGS should be considered additional consideration to include in the valuation of the size of the transaction.

Thanks,

[REDACTED]