Alert February 05, 2008

OTS Approves Private Equity Fund’s Rebuttal of Control and Concerted Action Regarding a Thrift

The OTS issued an Order (#2008-01) approving a Rebuttal of Control and Concerted Action filed by a private equity fund and affiliated entities and individuals (the “Acquiror”).  OTS Control Regulations state that an acquiror is deemed, subject to rebuttal, to have acquired control of a federal savings association if the acquiror, directly or indirectly, acquires more than ten percent of any class of voting stock of a savings association and is subject to any control factor.  The Acquiror here sought to acquire up to 25% of the stock of a thrift (the “Target”), and filed a rebuttal of control setting forth the facts and circumstances in support of its contention that no control relationship exists between the Acquiror and the Target.  The standard rebuttal agreement provides that a rebutting party will not engage in any intercompany transactions with the entity or the affiliates of the entity for which they are rebutting control.  The Rebuttal of Control filed by the Acquiror sought approval for engaging in certain limited transactions with the Target and participating as a party to certain agreements with the Target.  After review of the nature and extent of the proposed transactions and specified types of agreements, the OTS ruled that the Acquiror did not have the ability to control or influence the Target.  The standard rebuttal agreement also provides that an acquirer may not seek or accept non-public information from the subject of the rebuttal of control agreement.  The Acquiror represented that it would not seek or accept material non-public information, though it would occasionally exchange immaterial non-public information with the target due to the nature of its investment advisory business.  The OTS concluded that because the information was not material and similar to that exchanged between other investment advisors and their clients, this modification did not contravene the purposes of the rebuttal agreement.

As to the rebuttal of concerted action, parties seek to rebut (1) the presumption that a person will be acting in concert with members of the person’s immediate family, or (2) that a company is acting in concert with a management official of a company, if both the company and the person own stock in the savings association or savings and loan holding company.  Two affiliated individuals of the Acquiror received approval for their rebuttals of concerted action after demonstrating that: (1) the controlling member of the Acquiror, and his wife and children, did not own any voting stock in the Target, and the controlling member had executed an affidavit asserting he would not act in concert with his immediate family members and (2) a management official of the Acquiror personally owned a de minimis amount of the Target’s common stock, and executed an affidavit representing that he would not act in concert with the Acquiror.  On the basis of these facts, OTS found that the Rebuttals of Concerted Action met the applicable approval standards.