0806031 Informal Interpretation

From: (redacted)
Sent: Friday, June 27,20086:01 PM
To: Verne, B. Michael

Subject: Joint Venture --801.50 question CORRECTION to previous email

Hi Mike,

I had a small correction to my previous email, so please disregard and apologies for the multiple emails.

We had a question regarding joint ventures. This transaction is an asset purchase of certain assets of Company X whereby a newly formed LLC ("Newco") will receive cash, borrowed funds, and assets as follows:

Fund A, Fund B, and Fund C, each of which is its own UPE, will contribute cash to Newco. Funds A, Band C will receive 25%, 25%, and 5%, respectively, of the membership interests/voting stock in Newco. Company X, which is also its own UPE, will contribute a portion of its assets from a division and will borrow additional funds to purchase the remaining assets of this division in exchange for 40% of the membership interests/voting stock in Newco. The total value of the transaction is $400 million.

Notwithstanding that the parties are characterizing this as an asset purchase, it seems that this transaction would be evaluated under C. F. R. 801.50 as a joint venture because the seller is retaining an interest in the non-corporate Newco. Therefore, as the value of the assets is irrelevant and the fact that no one controls Newco, the transaction as non-reportable.

Do you agree?