For shareholder backside transactions, the parties should be evaluated as they exist immediately before the principal transaction. Therefore, the value of the shares of Company A must be included in the size of person.
Question
We are working on a transaction involving the sale of Company A to Company B and would appreciate your thoughts on a question regarding the calculation of the size of person test for natural persons.
Company A is its own ultimate parent entity, but approximately 32% of its shares are held by two trusts controlled by Individual A and Individual B, who are spouses. In the transaction, the trusts will receive approximately $160 million in Company B stock. Assume that neither individual, nor either trust, has a regularly prepared balance sheet.
We are evaluating whether the two individuals are required to make a filing in connection with the acquisition of Company B shares by the trusts. Under 801.11(e)(ii), if a natural person does not have a regularly prepared balance sheet, the proforma is to prepared shall be “[a]ll assets held by the acquiring person at the time of the acquisition” “less all cash that will be used by the acquiring person as consideration … and less all securities of the acquired person (or an entity within that acquired person).”
As part of the transaction, Company A will become a subsidiary of Company B and therefore will be “an entity within that acquired person.” While Company A is not part of Company B pre-acquisition, it will be at the conclusion of the acquisition. Accordingly, we believe the rationale for the exemption would be similar: the assets already held by the natural persons (i.e., their interests in Company A) should not be counted twice, once in the size of transaction test and again in the size of person test.
Can you please confirm the PNO’s view?