1011010 Informal Interpretation

us-ftc-hsr-informal-interpretations-bfeb6e8558a7581aa6e8b23adcf0b1e41011010 Informal InterpretationGuidance

Date
Rule
801.10
Staff
Michael Verne
Response/Comments
undetermined SOT = FMV of 100% of B

Question

From: (Redacted)
Sent: Tuesday, November 30, 20102:43 PM
To: Verne,B. Michael

Subject: Filing Question

Michael,

I think I spoke to you earlier about thefollowing transaction, all parts of which are closing contemporaneously:

1.A forms C, a limited liability company,and contributes to it $55M in capital.

2.S, B's sole shareholder, sells 80% ofthe stock of B to C for $55M.

3.S sells the balance of the stock of B toC for a 20% interest in C.

4.A has total assets or annual net salesof > $126.9M

5.B has annual net sales of > $126.9Mand total assets of > $12.7M.

You suggested that I can view thetransaction as the formation of C by A, which is an exempt transaction,followed by the purchase of B's stock by C. You then stated that the purchaseprice is $55M. Why wouldn't the 20% interest in C also be considered part ofthe purchase price?

If the 20% interest in C that S acquiresis included in determining the Size of Transaction, I'm stumbling on how tovalue it. C's sole asset before the transaction is the $55M in cash paid to S, andafter the transaction is the stock of B. Would the 20% interest in C be valuedin relation to the price being paid for B? If so, I think its value =.2($55M/.8) = $13.75. If added to the $55M cash purchase price, the value ofB's stock held by C as a result of the transaction would be $68.75, exceedingthe $63.4M Size of Transaction Test.


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