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Date
Rule
801.10
Staff
Premerger Notification Office
Response/Comments

The tip sheet is intended to help filers determine the value of voting securities whose acquisition is being reported. It is not a tool for evaluating the reportability of a transaction. Using the tip sheet, one can determine the transaction value at various moments in time, but the timing of the valuation that determines reportability of an acquisition of publicly traded voting securities is specified in Rule 801.10(a)(1) and (c)(1). If the transaction value is below the size of transaction threshold on Day 45 before closing, or falls below the size of transaction threshold on any day thereafter, then the transaction would not be reportable.

Based on the facts you have provided, the relevant market price for A’s acquisition of B would be $147 million, and the transaction will be reportable. 

Question

I am seeking guidance on interpretation of the PNO’s stock-for-stock transaction tip sheet in connection with the acquisition of a public company by another public company where there is a fixed exchange ratio.

Please find below an anonymized fact pattern and questions regarding the appropriate valuation methodology to determine the size of transaction for the primary acquisition.

Parties

Corporation A is the acquiring person, the acquiring entity, and a U.S. public company. Corporation A meets the higher size-of-person threshold of $252.9 million.

Corporation B is the acquired person, the acquired entity, and a U.S. public company. Corporation B meets the lower size-of-person threshold of $25.3 million.

Proposed Transaction

In Spring 2025, Corporation A entered into an agreement to acquire all of Corporation B’s voting securities. As consideration for the acquisition, Corporation B stockholders will receive 0.5 shares of Corporation A Common Stock for each share of Corporation B Common Stock they hold at the closing of the acquisition (the “Exchange Ratio”).

Each outstanding option to purchase Corporation B Common Stock will automatically be assumed by Corporation A and converted into an option to purchase the 0.5 shares of Corporation A Common Stock.

On the date of signing, Corporation B had 2,000,000 shares of Common Stock issued and outstanding and 200,000 outstanding options.

Based upon Corporation A’s closing price as of the day prior signing the agreement (i.e., $100 per share), the stock-for-stock consideration represents a transaction value of $110 million on a fully diluted basis (i.e., inclusive of Corporation B stock options). Corporation B’s shareholders are receiving a premium of 100% based on Corporation B’s closing price of $25 per share on May 19, 2025.

Assume for purposes of this hypothetical that the parties intend to close the transaction on August 1, 2025. Based on this closing date, June 2, 2025 is 60 days prior to closing, and June 17, 2025 is 45 days prior to closing.

Stock-for-Stock Tip Sheet

The PNO’s stock-for-stock transaction tip sheet provides the following guidance for determining the size of transaction for Corporation A’s acquisition of Corporation B:

  • If closing is within 45 or fewer calendar days, the greater of the market price of Corporation A stock or the market price of Corporation B stock.
  • If closing is within more than 45 days, the fair market value (“FMV”) of Corporation B stock.

Valuation Scenario

On June 2, 2025, 60 days prior to closing, Corporation A determines that the FMV of Corporation B’s Common Stock is $50 per share.

On June 17, 2025, Corporation A’s closing price is $130.00 per share, and Corporation B’s closing price is $70 per share. Assume that the closing price does not fall below these amounts prior to closing on August 1, 2025.

Assume that 100,000 options are exercised prior to closing, resulting in Corporation B having 2,100,000 shares of Common Stock acquired by Corporation A and 100,000 options assumed by Corporation A.

  1. Using the FMV of $50 per share of Corporation B Common Stock, the size of transaction would be $105 million.
  2. Using the market price of Corporation A Common Stock, the size of transaction would be $136.5 million (i.e., 2,100,000 shares of Corporation B Common Stock x 0.5 Exchange Ratio x $130 per share of Corporation A Common Stock).
  3. Using the market price of Corporation A Common Stock, the size of transaction would be $147 million (i.e., 2,100,000 shares of Corporation B Common Stock x $70 per share of Corporation B Common Stock).

Questions

  1. Please confirm that the correct size of transaction based on the valuation scenario above is Option A—i.e., $105 million—and that no HSR filing is required. We believe that this is the correct interpretation and that the intention of using the FMV for acquisitions occurring in greater than 45 days is to provide certainty on a filing determination within 60 days of closing rather than requiring Corporation A to wait until 45 days prior to closing to make a filing determination based on the market price. Otherwise, there would be no reason to provide for the use of the FMV for acquisitions in greater than 45 days except in the case where a party wants to make a filing more than 45 days prior to closing. If that was the intention, it should be made in the tip sheet for clarity.
  2. If you agree with Option A, what event triggers whether you can rely on the FMV or market price (e.g., a letter of intent or definitive agreement)? We presume, so parties do not game the system, that whether parties are within the 45-day period must be triggered by a certain event such as the signing of a letter of intent or definitive agreement. Here, the definitive agreement was signed more than 45 days (in fact, more than 60 days) before the intended closing date. Please confirm that you agree.
  3. If you agree with Option A, please confirm that the exercise of options between the FMV determination and closing date does not change the analysis that no filing is required as long as the valuation using the per share FMV inclusive of such option exercises does not exceed $126.4 million. For example, in the scenario above, the per share FMV is $50. Even if all 200,000 options were exercised, the aggregate FMV would only be $110 million (i.e., $50 x 2,200,000). However, if the FMV was $60 per share, then a filing would not be required if only 100,000 options were exercised (i.e., $60 x 2,100,000 = $126.0 million), but it would be required if 106,667 or more options were exercised (i.e., $60 x 2,106,667 = $126,400,020).
  4. If you disagree with Option A, is the size of transaction: (i) Option B (i.e., the greater per share market price) or (ii) Option C (i.e., the greater aggregate market price)? The tip sheet says to use the greater of the market price of A and the market price of B, but it is unclear if this is meant to mean the per share market price (i.e., the lowest closing price within 45 days of closing) or the aggregate market price. In the example above, the per share market price of Corporation A (i.e., $130 per share) is greater than the per share market price of Corporation B (i.e., $70 per share), but the aggregate market price of Corporation B (i.e., $147 million) is greater than the aggregate market price of Corporation A (i.e., $136.5 million).

Please let me know if you have any questions or require additional information.

About Informal Interpretations

Informal interpretations provide guidance from PNO staff on the applicability of the HSR rules to specific fact situations. They do not necessarily reflect the position of the Commission. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice. 

Learn more about Informal Interpretations.

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