2409008 Informal Interpretation

Sheinberg, Samuel I.
From: 	HSRH elp
Sent: 	Thursday, Se ptember 12, 2024 3:47 PM
To: 	Wa lsh, Kathryn E.; Berg, Karen E. ; M us ick, Vesse li na; Shaffer, Kr istin; She inberg, Samue l I. ;
Si x, Anne; Fetterman, Miche lle; Burton, June; Larson, Peter
Subject: 	FW: Request fo r Infor ma l HSR Guida n ce
From: White head, Nora < nwhite head@ftc.gov >
Sent : Thursday, Se ptember 12, 2024 3:46:27 PM ( UTC-05:00) Easte rn Time ( US & Ca nada)
To:
Cc : HSRHe lp < HSRHe lp@ftc.gov>
Subject: RE: Req uest fo r Informal HSR Gu ida nce
Based on the facts provided, we agree that Sponsor is not a UPE of Bu y er Corp. That sa id, it is worth ment ioni ng that any
ownership arrangement designed to evade the requirements of the HSR Act runs afou l of 801.90.
From : HSRHelp <HSRHe lp@ftc.gov>
Se nt: Thursday, September 12, 2024 11 :52 AM
To: Walsh , Kathryn E. <kwalsh@ftc.gov>; Berg, Karen E. <KBERG@ftc.gov>; Musick, Vesse li na <vmusick@ftc.gov>;
Shaffer, Kr istin <kshaffer@ftc.gov>; She inberg, Samuel I. <SSH EINBERG@ftc.gov>; Six, Anne <as ix@ftc.gov>; W hitehead,
Nora <nwhitehead@ftc.gov>; Fetterman , M ichelle <mfette rman@ftc.gov>; Burton, June <jburton@ftc.gov>; La rson,
Peter <plarson@ftc.gov>
Subject: FW : Request for Informal HSR Gu idance
From:
Sent : Thursday, Se ptember 12, 2024 11 :52:06 AM (UTC-05:00) Eastern Time ( US & Canada )
To: HSRHe lp < HSRHe lp@ftc.gov>
Subject: Req uest for Info rmal HSR Gu ida nce
Hi All :
We ha ve encountered a question concerning the interpretat ion of 801.l (b )( 2). Your guidance on th is wou ld be very much
appreciated.
Our cl ient is a new ly formed LLC (" Parent LLC"). Parent LLC is its own UPE . Pa r ent LLC will acquire 100% of Target through
a new ly-formed w ho lly-ow ned su bsidiary corporation (" Bu y er Corp."), a for-profit corporation. We have con cl uded that
an HSR fi li ng is required in connection w ith Bu y er Corp.'s acquisit ion of Target with Parent LLC as the ac quiring UP E.
Under its operati ng agreement (the " Oper at ing Agreement"), Parent LLC is governed by a 3-member board of managers.
While no one has the right to appoi nt more than one manager to the board, the Sponsor of Pa r ent LLC ha s the right to
designate a manager to the board with votes equal to the sum of the number of managers appointed by the other investo rs
pl us one. In other word s, the Sponsor' s designee would ind ividually ha ve a major ity of the votes in an y board decision. As
an LLC, the composit ion and structure of Pa r ent LLC' s board is not relevant to the determ ination of w hether it is contro ll ed
by another ent it y. Sponsor does not have the right to 50% o r mo re of Parent LLC' s profits or assets upon disso l ut ion and
so it does not control Parent LLC (w hi ch , as noted above, it is ow n UP E).
However, Parent LLC's Operating Ag reement provides that any w holly-ow ned subsidi ar ies of Pa r ent LLC, in cl ud ing Bu y er
Corp., must ha ve a board of directors/ managers that mirrors the board of Parent LLC. So while Sponsor will not ha ve the
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contractual right to designate 50% or more of Buyer Corp.’s board of directors, Sponsor’s designee on Buyer Corp’s board
will have a majority of the votes in board decisions.
801.1(b)(2) defines “control” to include, among other things, “the contractual power presently to designate 50 percent or
more of the directors of a for-profit or not- for profit corporation.” Strictly speaking, Sponsor does not have the right to
designate 50 or more of the directors of Buyer Corp., in which case Sponsor is not a UPE of Buyer Corp. Here are our
questions:
1. 	Is this the correct reading of the rule or is it the PNO’s view that, under the circumstances described above, the
control determination would be based on board votes rather than the number of directors?
2. 	If the latter is correct, would Sponsor and Parent LLC each be required to submit their own HSR filing, as acquiring
UPEs, in connection with Buyer Corp.’s acquisition of Target?
Thank you.
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