0807012 Informal Interpretation

From: (REDACTED)
Sent: Wednesday, July 23,2008 1:59 PM
To: Verne, B. Michael

Subject:Application of Rule 802.2(g) Exemption to Flower Business

Mike, I have aquestion regarding the scope of the 802.2(g) exemption. Assume a situation inwhich the company to be acquired derives all or substantially all of itsrevenues under NAICS Code 111422 --Floriculture Production (which includesproducing flower seeds and cuttings). A substantial part of its assets includegreenhouses, equipment and other assets used to conduct research, developmentand breeding activities, contracts, intellectual property, certain geneticlines, seed inventories and related accounts receivable. Also, Company X doesnot provide research and development services to third parties but does licensesome of its flower varieties to distributors for sales in the U.S.

My understandingis the fact that the code at issue here (111422) falls within Sector 11 andmore specifically into 111 ("Crop Production") would lead to itsbeing covered under 802.2(g). "Agricultural property" includes"real property that primarily generates revenues from the production ofcrops, fruits, vegetables, livestock, poultry, milk and eggs (certain activitieswithin NAICS Sector 11).

Also while theRule refers to real property, it has been applied to assets used in researchand development activities. In particular, in Informal Staff Opinion 0004001(April 4, 2000), the purchaser was planning to acquire certain assets used in apoultry research and development business as well as a hatchery that sold babychickens. http://www.ftc.gov/bc/tlsr/informal/opinions/0004001.hlm. The assetsacquired included real property, improvements, contract rights, equipment,intellectual property and certain genetic lines. Based on the representationthe company's research and development activities were all internal, thePremerger Notification Office confirmed the transaction was exempt under Rule802.2(g). The same reasoning would apply here to exempt Company A's acquisitionof Company X. Further, while flowers are not specifically referenced in Rule802.2(g), our understanding is that it applies to all agricultural activitiesin NAICS Sector 11 except acquisitions relating to timberland, which have beenexcluded from the exemption. See, e.g., Informal Staff Opinion 0212005(December 10, 2002) (12/11 Response/Comments --"This activity falls withinNAICS section 11, therefore the 802.2(g) exemption available.") http://ftc.gov/bc/hsr/informal/opinions/0212005.htm.

Of course, for thetransaction to be non-reportable it would need to satisfy the limitations of802.4, such that the remaining non-exempt assets (if any) would not be valuedin excess of $63.1 million. But before evaluating that I first wanted toconfirm that 802.2(g) would extend to the flower business and the associatedassets noted above (i.e., greenhouses, equipment and other assets used toconduct research, development and breeding activities, contracts, intellectualproperty and certain genetic lines.)

Please let me knowwhether you agree with this analysis or would like to discuss this matterfurther.