2601002 Informal Interpretation

Dear PNO,

We would appreciate your confirmation of our understanding that it is appropriate to report the proposed transaction described below as a formation under Rule 801.50. The facts and our analysis are provided below. Please feel free to reach out if you have any questions. 

FACTS:

Fund X and Fund Y are contemplating the possibility of contributing businesses that they respectively control, Company A and Company B, to a newly formed limited partnership (“LP 1”). The proposed transaction steps are as follows:

1. First, Fund X will form and control LP 1.
2. Second, LP 1 will form a corporation (“NewCo”) as a wholly owned subsidiary of LP 1. LP 1 will directly hold 100% of NewCo’s voting securities.
3. Third, Fund X will contribute 100% of Company A’s voting securities to NewCo in exchange for LP 1 interests. No cash consideration will be exchanged.
4. Fourth, Fund Y will contribute 100% of Company B’s voting securities to NewCo in exchange for LP 1 interests. No cash consideration will be exchanged.
5. Fund X and Fund Y will each be entitled to two board seats of LP 1, with the directors appointed by Fund X having voting rights representing a majority of the board. Additionally, the CEO will hold a board seat, and there will be an option for Fund X and Fund Y to appoint two additional independent board members.
6. Upon consummation, Fund X will acquire 75% of LP 1’s non-corporate interests and Fund Y will acquire 25% of LP 1’s non-corporate interests. Fund X will have HSR control of LP 1. Fund Y will not acquire HSR control of LP 1. 

ANALYSIS:

We view this as a formation pursuant to Rule 801.50, in which Fund X is required to file as an Acquiring Person, but neither Fund Y nor LP 1 are required to file. We believe this is consistent with PNO Informal Interpretation 1204007 (see 1204007 Informal Interpretation | Federal Trade Commission). We note that we view this as falling under 801.50 instead of 801.40 because the parties are receiving noncorporate interests in LP 1 as opposed to voting securities in NewCo.

The formation of LP 1 and NewCo, and the contribution of Company A’s voting securities to NewCo in exchange for interests in LP 1, by Fund X is exempt from reporting pursuant to Rule 802.30 because Fund X is contributing assets to an LP that it already controls. Fund Y’s contribution of Company B to NewCo in exchange for interests in LP 1 is exempt from reporting because Fund Y will not acquire HSR control of LP 1. However, Fund X’s acquisition of interests in LP 1 requires Fund X to file because (a) it is acquiring the Company B assets, (b) these assets have a FMV that exceeds the size of transaction test, (c) the size of person test is met, and (d) no other filing exemption applies. 

If you agree that the above should be treated as a formation under 801.50, please also confirm our understanding that Fund X should submit a filing as an Acquiring Person only even though it is both an acquiring and acquired person because “the contributors shall be deemed acquiring persons only and the unincorporated entity shall be deemed the acquired person only.” See Rule 801.50(a). Like Fund Y, LP 1 is not required to file as an Acquired Person.