1607004 Informal Interpretation

From: 	Shaffer, Kristin
To:
Cc: 	Walsh, Kathryn E.;
Subject: 	RE: HSR Question
Date: 	Wednesday, July 13, 2016 9:55:00 AM
If there is a reasonable basis for estimating the contingent portion(s) of the consideration, then the
acquisition price can be determined. If, however, the contingent portion(s) is/are too speculative,
then the buyer must determine the FMV. See PNPM 54, 55. The mark-up should not be counted as
additional consideration.
Best regards,
Kristin
________________________________
Kristin Shaffer
Attorney
Premerger Notification Office
Federal Trade Commission
202-326-3434 | kshaffer@ftc.gov
From:
Sent: Tuesday, July 12, 2016 4:21 PM
To: Walsh, Kathryn E.
Cc:
Subject: RE: HSR Question
Hi Kate,
I have a question as to how to value a potential asset transaction. Assume that company A is selling
its assets (regulatory files, applications and approvals, IP, including technology know-how and
specific trademarks, tradenames and goodwill) for a non-patented product (the "Product") to
company B. Company B will pay as consideration $10m upfront, a contingent $10 milestone
payment and royalties based on worldwide sales for 10 years. In addition, for 4 years, company A will
act as a toll manufacturer of the Product while company B completes technology transfer and
regulatory approvals. In addition for 4 years, Company B will purchase a related product from
company A. Company B will pay company A a 15% mark-up on its COGS for the toll manufacturing
and the other product.
1. 	As to the $10m upfront, the $10 milestone payment and royalties, I understand that this
consideration is "undetermined" and the buyer must make a good faith valuation 60 days
before filing or closing.
2. 	My question is whether the 15% mark-up for COGS should be considered additional
consideration to include in the valuation of the size of the transaction.
Thanks,