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Date
Rule
801.10
Staff
Michael Verne
Response/Comments
Agree, KW concurs.

Question

From: (Redacted)
Sent: Tuesday, April 23, 2013 2:24 PM
To: Verne, B. Michael
Cc: Walsh, Kathryn; (Redacted):
Subject: Acquisition pr
ice for notes being acquired at less than face value

Mike,

I left you a short voice mail message about this question but wanted to follow-up with an email to explain the facts more clearly.

Company A is acquiring all of the equipment of Company B for a purchase price of approximately $28 million. Company A will also acquire Company B's inventory for $13. A bank that is unaffiliated with Company B holds Company B notes with a face value of $50 million. As part of this transaction Company A will pay the bank $27 million for the Company B notes. The bank is apparently willing to sell the notes to Company A for less than their face value because there is some risk that Company B will not be able to repay the full amount to the bank absent this transaction.

I am trying to determine the acquisition price for this transaction. I assume that because this is an asset acquisition we must include the consideration being given by Company A to the bank in exchange for the Company B notes. If that is true, I also assume that we should include only $27 million for the notes as that is the actual amount being paid to the bank even though the notes have a face value of $50 million.

Based on these assumptions the acquisition price would be $68 million ($28+$13+$27), which is less than the current size-of-transaction threshold of $70.9 million. Do you agree that this is the correct approach?

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