Question
[Redacted]
May 1, 1984
Wayne Kaplan
Federal Trade Commission
Room 301
7th & Pennsylvania Aves. NW
Washington, D.C. 20580
Re: Pre-Merger Notification
Dear Mr. Kaplan:
I am writing to outline the substance of our recent conversation regarding the following proposed transaction. My client is Corporation A. A is a non-stock, non-profit membership corporation organized under Chapter 181, Stats, and has no subsidiary. A operates a non-profit hospital. The sole members of A are named to serve that function by the General Counsel of their religious order, "Order X". Since Order X is not actively involved in hospital work, theso have decided that the hospital would be better served if it were to be sponsored by another religious order. therefore, they have approached another "Order Y", which operates several hospitals.
Each of Order Y's hospitals is organized as a separate non-profit, non-stock membership corporation (B-K). The sole member of each of these hospital corporations is a non-profit, non-stock membership holding company, Corporation L. Corporation L is in turn controlled by its sole member, Corporation M. M's Board of Directors consistes of from Order Y. this structure is reflected in the attached chart.
Key financial information on these entities (from the last audited financial statements) is as follows:
Corporation A Assets $ 19,500,000 Sales (patient revenues) $ 18,700,000 Current Liabilities $ 2,400,000 Outstanding Bonds $ 10,000,000 Captialized Lease $ 300,000 Fund Balance $ 6,900,000 Corporation M (Including B-K and L) $ 250,000,000
For purposes of our discussion, you and I assumed that Corporation M, the "ultimate parent entity", would be viewed as the acquiring person. We also assumed that M was engaged in commerce, so that the test of 15 USC 18a(a)(1) was met. Since the assets of A exceed $10,000,000 and the assets of M (and its subsidiaries) exceed $100,000,000, the test of 15 USC 18a(a)(12)(B) was met.
You advised me that you would view the proposed transaction as a voting securities acquisition. Accordingly, after the acquisition, M would be regarded as "holding" 15% or more of the voting securities (in fact, 100% control) of A, but would not be regarded as holding an aggregate total amount of the voting securities and assets of A in excess of $15,000,000. This conclusion seems reasonable particularly since the net worth of A is no more than $6,900,000. Thus the test of 15 USC 18a(a)(3)(A) was met but the test of 18a(a)(3)(B) was not met. Therefore, it was your conclusion that this acquisition was exempt from the HSR filing requirements under 16 CFR 802.20(b) since, after the acquisition, M would not hold voting securities conferring control of an entity whose annual net sales or assets exceed $25,000,000.
It is my plan to rely on your advice and proceed with the consummation of this transaction, unless you advise me before May 0, 1984 that your views have changed. Thank you for your prompt consideraiton of this matter.
Very truly yours,