Question
[redacted]
Attorneys at Law
June 15, 2000
Via Â鶹´«Ã½ Express
Michael B. Verne, Esq.
Â鶹´«Ã½ Trade Commission
Premerger Notification Office
Mail Drop - Room H-301
6th Street and Pennsylvania Avenue, N.W.
Washington, DC 20580
Re: HSR Filing Question
Dear Mike:
I am writing to confirm that a transaction proposed by our client does not require a filing under the Hart-Scott-Rodino Act.
Overview of Entities
As indicated in the diagram below, Insurer A, which is a health insurer, owns Subsidiary A, which is a health maintenance organization ("HMO"). System B owns Insurer B (which operates an HMO and PPO, Subsidiary B (a third-party administrator ("TPA")), and a number of hospitals ("Hospital B"). Subsidiary B provides TPA services to Insurer B. Both Insurer A and System B have assets and annual net sales in excess of $100 million. Insurer A and System B have proposed a multi-part transaction, which includes among other things the formation of a joint venture.
[see PDFfile for Diagram]
Description of Transaction
First, Subsidiary A will purchase some of the HMO membership (i.e., enrollees) of Insurer B. The purchase price is $2 million, which represents fair market value.
Second, Subsidiary A will purchase 51% of the stock of Subsidiary B. The purchase price will be $1 million, which represents fair market value. Subsidiary B does not have annual net sales or total assets of $25 million or more. {802.20}
Third, Insurer A and Insurer B will form a joint venture to coordinate the administration of the insurance business sold from Insurer B to Subsidiary A and certain other insurance business of Insurer A and Subsidiary A. The joint venture itself is expected to hold few if any assets - its assets will certain be less than $1 million. The profits or losses of the business in the joint venture will be divided in agreed proportions, subject to change under certain circumstances, with 50% to 60^ going to Insurer A and 40% to 50% to Insurer B. Upon termination of the joint venture, Insurer B will also receive 50% of the value of any membership that may be added to the joint venture business during its term. {JV is not a $10MM person.}
In addition, Hospitals B have agreed to amend Insurer A's hospital contract with Hospitals B to include a most favored nation ("MFN") clause. the MFN clause generally provides that during the term of the joint venture, and for up to two years thereafter, rates charged to Insurer A and Subsidiary A, including rates applicable to business in the joint venture will be 5% better than the rates given to any other insurer by Hospital B.
The benefits to the parties are summarized below:
| Insurer A and Subsidiary A get: | Insurer B gets: |
| Certain enrollees of Insurer B | $2 million |
| 51% of the stock of Subsidiary B | $1 million |
| 5% MFN from Hospital B | up to 50% of the profits of all business in the joint venture and, upon termination of the joint venture, 50% of the fair market value of the membership of Insurer A and Subsidiary A then included in the joint venture, net of membership in place at the time of its formation |
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Conclusion
It is our conclusion that no filing is required because the financial thresholds that would trigger a filing requirement is not met. After you have had a chance to review this letter, please call me at and let me know whether you agree. Thanks in advance for you help.
Sincerely,
[redacted]
[redacted]