2202001 Informal Interpretation

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Sheinberg, Samuel I.
From: 	HSRHelp
Sent: 	Tuesday, February 22, 2022 4:10 PM
To: 	Walsh, Kathryn E.; Berg, Karen E.; Shaffer, Kristin; Sheinberg, Samuel I.; Six, Anne; Whitehead, Nora
Subject: 	FW: 802.51 - Fair Market Value of U.S. Assets
To:
Cc: HSRHelp <HSRHelp@ftc.gov>
From: Musick, Vesselina <vmusick@ftc.gov>
Sent: Tuesday, February 22, 2022 4:09:39 PM (UTC-05:00) Eastern Time (US & Canada)
Subject: RE: 802.51 - Fair Market Value of U.S. Assets
We can confirm that the board of the acquiring person must determine the fair market value of the assets in good faith
based on the business realities of the acquisition. As we have stated before, the PNO does not have a preferred method
for conducting fair market valuation, and does not give advice on what method is appropriate.
Best,
Vesselina
Vesselina Musick
Attorney | Federal Trade Commission | Premerger Notification Office
Direct +1 202.326.2307 | Email: vmusick@ftc.gov | www.ftc.gov
From:
Sent: Monday, February 21, 2022 10:13:55 AM (UTC-05:00) Eastern Time (US & Canada)
To: HSRHelp <HSRHelp@ftc.gov>
Cc:
Subject: 802.51 - Fair Market Value of U.S. Assets
Dear All –
We are analyzing whether a transaction is exempt under 802.51(a). We have a question relating to informal
interpretations 1907004 and 2105010. We would like to confirm that an acquiring person is not required to apportion
goodwill based on the percentage of U.S. sales to total worldwide sales, but instead is able to utilize an appropriate
valuation methodology that it in good faith determines is appropriate based on the specific transaction in question.
In our transaction, Buyer is acquiring X (a software company) for a total purchase price of greater than $101 million, but
less than $403.9 million. X is a foreign issuer that meets the $20.2 million size of person test. X made total aggregate
sales in and into the U.S. of less than $101 million in its most recent fiscal year. The transaction will therefore be exempt
under 802.51(a) if X holds assets located in the U.S. (other than investment assets) having a fair market value of less
than $101 million.
X’s non-investment assets include tangible and intangible assets in the U.S. and outside the U.S., including property and
equipment, customer contracts, trade receivables and patents (issued in both the U.S. and outside the U.S.).
X’s total sales in 2021 were $17.4 million. X had total sales in and into the U.S. of $5.4 million (approximately 30% of
total sales). However, on X’s regularly prepared balance sheet:
U.S. assets (including intangibles and goodwill) account for less than 5% of the total worldwide assets;
U.S. accounts receivable account for approximately 13% of total worldwide accounts receivable;
U.S. fixed assets account for less than 3% of total worldwide fixed assets;
U.S. long term assets account for approximately 1% of the total worldwide fixed assets;
U.S. “other current assets” account for less than 1% of total worldwide “other current assets”.
Importantly, X does not attribute any value on its balance sheet to U.S. intangibles or goodwill, and the book value of its
worldwide intangible assets is only approximately 2% of the total assets.
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We believe that apport ion ing goodwill (the excess of the tota l purchase price over the fair market value of X' s net
identifiab le assets less tota l liabilities) is not appropri ate or required for a fo reign issuer such as X that has an objective ly
limi ted nexus w ith the U.S. in terms of its asset base. The PNO has previously stated in its December 13, 2013 Blog on
the Location and Value of Patents (https : //www.ftc.gov/news-events/blogs/compet i tion-matters/2013/12/ location
value-patents) that :
The fair mar ket value of U.S. patents should be determ ined using a method that is consistent wi th the method
used fo r determ ining the value of the overa ll patent portfo li o. That value should include the value of any
goodwill, know -how or other intangible assets allocated to those U.S. patents. The board of the acquiring
person, or someone delegated the respon si bilit y, must determ ine the val uat ion in good fai th. The PNO does not
have a prefe rr ed method fo r conducting th is valuation , and does not g ive advice on w hat method is appropr iate .
Wh ile the Blog discussed the valuation of patents in part i cu lar, w e believe the same approach is applicable to the
determ i nat i on of the proper allocation of goodwill. The allocation of good wi ll based on the propo rt ion of U.S. sa les to
tota l w orldw ide sa les may be a valid proxy fo r some t ransactions. How ev er, it should not be the required methodo logy
for all transactions irrespect ive of the facts, particu lar ly since buyers are much better po si tioned to determ ine in good
faith w hat valuation methodo logy is appropr iate. Instead, as the PNO stated in its 2013 Blog, " [t]he board of the
acquiring person, or someone delegated the responsibilit y, mu st deter mine the val uat ion in good fai th ," even if the
acquiring person chooses a differ ent methodo logy than compar ing U.S . sa l es to tota l w orld wi de sa les.
Please l et us know if you agree, or if w e can provi de addit iona l i nformat i on to assist wi th y ou r review .
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