2303004 Informal Interpretation

She inberg, Samuel I.
From: 	HSRHelp
Se nt: 	Thursday, March 23, 2023 3:00 PM
To: 	Wa lsh, Kathryn E. ; Berg, Karen E. ; Musick, Vessel ina; Shaffer, Kristin; She inberg, Samuel I.; Six, Anne;
Fetterman, Miche ll e
S ubj ect : 	FW: Question Re: 802.10(b)
From: Whitehead, Nora < nwhitehead@ftc.go v>
Se
To:
Cc:
Su
It 's the basic percentage of both ent ities.
From: HSRHelp <HSRHe lp@ftc.gov>
Se nt : Wednesda y, Mar ch 22, 2023 4:27 PM
To: Walsh , Kathryn E. <kwalsh@ftc.gov>; Berg, Ka ren E. <KBERG@ftc.gov>; Musi ck , Ves seli na <vmusick@ftc.gov>;
Shaffer, Kristin <kshaffer@ftc.gov>; She inberg, Samuel I. <SSHEINBERG@ftc .gov>; Six, Anne <as ix@ftc.gov>; W hitehead,
Nora <nwh itehead@ftc.gov>; Fetterman, Michelle <mfetterman@ftc.gov>
Subject : FW: Question Re : 802.l 0(b)
From:
Sent : 	astern nme ( US & Ca nada)
To: 	< 	>
Cc:
Su
A ll ,
We ha ve a question regarding the application of Ru le 802 .10(b )( 2 )( i) in connection w ith the conv ersion of a li mited
pa rtnership to a cor po ration and would appreciate y our thought s.
More specifically, we wanted to understand ho w " per centum holdings" shou ld be determined under Ru le
802.10(b)(2 )( i) when the exemption provides that " the acquiring person does not i nc rease its per ce ntum holdings in the
new ent ity relat ive to its per ce ntum holdings in the or iginal entit y" :
Is " per centum ho ldings" the basic percentage owner sh ip of both ent it ies or is the " per centum holdings"
determ ined similar to the analysis for " control" (i. e., (1) for the partnership, ba sed on the percentage right to
profits or right to assets on dissolution, excluding any percentage interests that ha ve pr efer red returns and (2)
for the corporation, under Ru le 801.12 where the corpor at ion has mu lt iple cla sses of sto ck that v ote fo r ce rta in
directors )?
In our case , we ha ve a partnership where many l im i ted partners have a cl as s of units entit li ng them to preferred returns,
and based on #4 from the Premerger Not ification Practice Manual (5th Ed. ), we understand that the Premerger
Noti fi cation Office views these interests as " debt" and therefore the y are not factored into the determination of control
of a non-corporate ent it y. The corpor at ion after conversion will have 2 classes of common stock, and holders of Class B
stock will elect 6 out of 11 directors, and ho lders of Class A and Clas s Bv ot ing together wi ll elect the remaining 5
directors. We have reviewed various informal interpretations involving per centum ho ldi ngs, but we did not find any
interpr etat ions regarding ho w per centum ho ldings should be ca l cu lated w hen conv ert ing from one ent ity t ype to
another.
Be c au se there are l im ited pa rtners w ho curr ent ly ho ld only preferred units in the partnership that will receive common
stock in the cor po ration, if the per centum ho ldings are determined in the same manner as the tradit ional " control"
ana ly si s as set forth above, the ho ldi ngs of these l im ited pa rtners will increase merely as a result of the di fferent
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methods used for determ ining control of corporate and non-corporate ent ities when in fact the true percentage
ownership of these li mited partners will actually decrease in connection wi th the conversion.
Thank you and please let us know if there is an y addit ional information you need.
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