0510003 Informal Interpretation

From:(redacted)
Sent: Thursday, October 06, 2005 2:32 PM
To:Verne, B. Michael
Subject: 16 CFR 802.4

Dear Mike:

Yesterday we discussed a hypothetical in which an acquiring person is acquiring"control" of an LLC ("Acquired Entity").

The Acquired Entity directly owns minority noncorporate interests in two LLCs.You mentioned that under Rule 802.4, the value of these minority interestswould be excluded from the calculation of the "'size of transaction."

Assume, however, that one of the LLCs is controlled by the ultimate parent ofthe acquiring person while the other LLC is not. That is, one of the LLCs inwhich the Acquired Entity directly holds a minority interest is indirectlycontrolled by the ultimate parent entity of the acquiring person through adifferent chain of ownership not involving the Acquired Entity.

Would the two LLCs be treated differently under Rule 802.4? I ask because itappears there would be no exemption for the UPE in the event it were to haveacquired that LLC directly

Based on a literal reading of 802.4(a), my conclusion is that the two LLCswould be treated the same under 802.4 and both would be excluded from thevaluation calculation since the Acquired Entity holds only a minority interestin each of the LLCs. My conclusion is based on the Rule speaking of value ofnon-exempt assets "the ...unincorporated entity and all entities itcontrols ...." (Emph.added.) That is, the rule seems to look at assetsunder the direct control of the acquired entity rather than under indirectcontrol of the UPE.
Do you agree? Many thanks for your great assistance in understanding these newrules.