9504004 Informal Interpretation

Date

April 14, 1995

Rule

801.1(a)(2)

Staff

Richard Smith

Response/Comments

4/14/95 - Advised writer that, as long as state agency qualifies as such (and he stated that, without doubt, it did) then it would not qualify as an entity under 801.1(a)(2) and, as such, could purchase the industrial real estate from Partnership A (in which it holds a 100% interest and which, in the view of the PMN Office, would not exist as a partnership) without reporting since it is not doing so through a controlled corporation (which itself could qualify as an entity). Both steps are non-reportable events, since acquiring person is a state agency.

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Question

April 13, 1995

VIA FACSIMILE

Richard Smith
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washing ton, D.C. 20580

Dear Dick:

As we discussed this morning, I would appreciate your thoughts on whether a proposed transaction is reportable under the Hart-Scott-Rodino Act. The following describes the proposed transaction (assume the size of person test is satisfied):

Partnership A holds industrial real estate. The real estate has a gross fair market value of $46 million. This real estate is encumbered by $30 million in non-recourse debt. Thus, the equity value of Partnership A is $16 million. Partnership A is held by two 50% general partners: Partner B and Partner C.

Partner B is a limited partnership owned by a 1% general partner (Corporation%) and a 99% limited partner (a state agency).

Partner C is a partnership owned by two 50% general partners: Sub-Partner D and Sub-Partner E.

Sub-Partner D is owned by several individuals and trusts.

Sub-Partner E is a limited partnership owned by a 1% general partner (Corporation Z) and a 99% limited partner (a state agency). Thus, Partner B and Sub-Partner E are different partnerships, but both are owned by the same corporation and same state agency. In addition, Corporation Z is wholly owned by that same state agency.

Based on the above description, you can see that currently the state agencys indirect economic ownership of the industrial real estate is 75% and Sub-Partner Ds indirect economic ownership of the industrial real estate is 25%.

First step of transaction: Partner C makes a non-liquidating distribution of its entire interest in Partnership A to Sub-Partner E. The consideration Sub-Partner E pays to Sub-Partner D for this interest is approximately $4 million. (After this step, the state agency indirectly owns 100% of the economic interest of the industrial real estate.)

Second step of transaction: Partner B assigns its interest in Partnership A to Sub-Partner E. At this point, Sub-Partner E is the only partner in Partnership A, thus Partnership A dissolves and Sub-Partner E takes title to the industrial real estate.

Issues:

A) Is the first step of the transaction reportable?

B) Is the second step of the transaction reportable?

To assist your analysis I have included a diagram that provides a pictorial view of the structure of this transaction at each step. Thank you for your assistance, (redacted) and I will be speaking with you soon.

Sincerely,

(Redacted)

cc: (redacted)

9504004 Informal Interpretation

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