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Date

Tags:

Rule
801.10
Staff
Timothy Carson
Response/Comments

We cannot tell if the acquiring person is determining fair market value in good faith since we do not know what impact the claims already made have on a good faith valuation in this particular circumstance. You will need to make the final call and be prepared to defend any decision not to file if investigated.

Question

From: Carson, Timothy


Sent: Thursday, June 11, 2020 6:58:52 PM (UTC-05:00) Eastern Time (US & Canada)


To: [Redacted]


Cc: [Redacted]


Subject: RE: Valuing assumed liabilities

We cannot tell if the acquiring person is determining fair market value in good faith since we do not know what impact the claims already made have on a good faith valuation in this particular circumstance. You will need to make the final call and be prepared to defend any decision not to file if investigated.

From: [Redacted]


Sent: Thursday, June 11, 2020 9:25:44 AM (UTC-05:00) Eastern Time (US & Canada)


To: [Redacted]


Cc: [Redacted]


Subject: Valuing assumed liabilities

Hello,

We represent a potential buyer in an asset acquisition. Along with the assets, Buyer will assume certain liabilities associated with the assets, including potential liability from potential warranty claims. Seller has made an estimate of its risk under those warranties. For example, if there were potentially $100m in warranty claims, and Seller has estimated that they have at most a 10% risk of actually having to pay the full amount, Seller has assigned on their own books a $10m liability. We think that for HSR purposes, we can value that assumed warranty liability in the way that Seller has – at $10m. Do you agree?

If some of the warranty claims have already been made, we think we can still value them for HSR purposes at the value Seller has assigned (which is still at some percentage chance of having to pay the full warranty claim, and thus, less than the full potential liability). Do you agree?

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. 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.

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