Question
From: (redacted)
Sent: Wednesday, October 17, 2007 4:56 PM
To: Verne, B. Michael
Subject: HSR inquiry
CONFIDENTIAL
DearMike
This is to follow up my voice-mail of this afternoon.Buyer's counsel contacted you with a preliminary inquiry last week. Since thenwe have learned more about the facts, and they are forth below. Based on thesefacts, have I stated the HSR analysis correctly? As always I will be gratefulfor your help.
CompanyA is going to acquire control of two companies, Company B and Company C. We areconfident that an HSR filing will be required with respect to Company C. Aspart of that filing, Company A and Company C will submit under Item 4(c) anOffering Memorandum, which addresses both Company B and Company C. Our questionis whether we also need to make an additional HSR filing with respect toCompany B. The value of the Company B transaction may fall below the relevantthreshold. The financial structure of these transactions has been arranged forbona fide business reasons, and is not in any way a device to avoid an HSRfiling.
Thefacts and my analysis with respect to Company B are as follows. (The numbersbelow are round numbers that illustrate the issues, and they are not intendedto state the precise figures for the transaction.)
1.Company A will form Newco as a wholly-ownedsub.
2.Newco will merge with Company B, and thesurviving entity will have Company A as its parent. Thus for HSR purposes itwill be deemed that Company A is acquiring voting securities of Company B.
3.Company A will pay $50 million to thecurrent shareholders of Company B.
4.Company B has $15 million in preexistingdebt, and at closing Company A will pay off the $15 million in debt.
-From No. 88 and No. 114 of the PremergerNotification Manual I have understood that this $15 million is not countedtoward the value of the transaction in an acquisition of voting securities. Thusthe value of the transaction is still $50 million.
5(a).At the same closing, Newco will borrow $10 million, and Newco will use thatmoney to redeem some of the existing interests of current shareholders of CompanyB.
-From recent informal interpretations andstaff phone calls I have understood that the borrowing and redemption is notincluded in the value of the transaction. Thus the value of the transaction isstill $50 million for HSR purposes.
5(b).As an alternative, it could be that Company A itself would borrow the money orwould guarantee repayment by Newco.
- Inthat event the $10 million would be included in the value of the transaction,and in that event the value of the transaction would be $60 million.
Have I stated the analysis correctly based on thesefacts? Please send me a reply e-mail, or else please call me at the numberbelow if that would be more convenient for you.
Thank you very much and best regards, -