# MEMO: Alder Loom / Prism Thread Merger Screen ## Threshold note The transaction is $140 million, so the size threshold is met. The only question is whether any properly defined market triggers a filing. The two products are separate markets; they may not be combined to dilute shares. --- ## 1. Industrial conductive yarn Premerger shares: - Alder Loom: 12% - Prism Thread: 8% - Competitor A: 25% - Competitor B: 20% - Competitor C: 15% - Competitor D: 10% - Competitor E: 10% ### Combined share \[ 12\% + 8\% = 20\% \] ### Premerger HHI \[ 12^2 + 8^2 + 25^2 + 20^2 + 15^2 + 10^2 + 10^2 \] \[ = 144 + 64 + 625 + 400 + 225 + 100 + 100 = 1,658 \] ### Postmerger HHI Alder and Prism combine into one 20% seller: \[ 20^2 + 25^2 + 20^2 + 15^2 + 10^2 + 10^2 \] \[ = 400 + 625 + 400 + 225 + 100 + 100 = 1,850 \] ### HHI increase \[ 2 \times 12 \times 8 = 192 \] Also: \[ 1,850 - 1,658 = 192 \] ### Filing triggers / structural presumption - Combined share: **20%**, below 25%. - Postmerger HHI: **1,850**, above 1,800. - HHI increase: **192**, not more than 200. Because the HHI increase is not greater than 200, neither the HHI filing trigger nor the structural presumption applies in this market. The market would not independently require a filing. --- ## 2. Medical conductive mesh Verified domestic market revenue: \[ \$80\text{ million} \] Alder + Prism combined verified revenue: \[ \$18\text{ million} + \$6\text{ million} = \$24\text{ million} \] Let: \[ I = \text{verified qualifying import revenue in the measurement year} \] Market size with verified imports: \[ 80 + I \] ### Combined-share formula \[ \text{Combined share} = \frac{24}{80 + I} \times 100\% \] At present, with no verified imports, \(I = 0\): \[ \frac{24}{80} \times 100\% = 30\% \] So on the current verified record, the combined share already exceeds 25%. ### Import level needed to fall below 25% Set: \[ \frac{24}{80 + I} = 0.25 \] \[ 24 = 0.25(80 + I) \] \[ 24 = 20 + 0.25I \] \[ 4 = 0.25I \] \[ I = 16 \] At \(I = 16\): \[ \frac{24}{96} = 25\% \] Because the rule uses “at least 25 percent,” exactly 25% still triggers the filing. The combined share falls **below** 25% only when: \[ I > \$16\text{ million} \] If verified imports are $16 million or less, the medical-mesh combined share is still 25% or higher, and the share-based filing trigger remains met. --- ## 3. Why the medical-mesh HHI cannot yet be calculated reliably The total import revenue alone is not enough for HHI. HHI is the sum of the squared market shares of **each seller**. We do not have: - verified seller-by-seller import shares; - a breakdown of the $56 million “other verified sellers” into individual sellers; - enough information to know whether imports are held by one large seller or fragmented among many sellers. Those different facts produce very different HHI values even with the same total import revenue. Therefore, a reliable postmerger HHI for medical conductive mesh cannot currently be calculated. If \(I\) were verified, the HHI **increase** from the merger could be calculated as: \[ 2 \times \left(\frac{18}{80+I}\times100\right) \times \left(\frac{6}{80+I}\times100\right) \] But the **postmerger HHI** still requires the full seller-by-seller market shares. Total imports alone do not provide that. --- ## 4. Data needed to verify imports To count imports for the market and HHI calculation, the parties need verified customer and importer records showing: - that the product is actually medical conductive mesh, not unrelated textile products covered by the same customs code; - that the product was delivered into Corda during the measurement year; - the seller or importer identity; - the customer identity; - the revenue amount for each sale; - invoices, customs entries, shipping or delivery records; - enough seller-by-seller detail to calculate HHI. Aggregate customs-code data is not sufficient because the customs code combines medical mesh with unrelated textile products. --- ## 5. Filing and gun-jumping consequences If a filing trigger is met, the parties must file before closing. If they close without a required filing, each party may face: \[ \$40,000 \text{ per day} \] from closing until they comply. If both parties are liable, that is potentially $80,000 per day combined. Management’s argument that imports “probably” push the share below 25% is not a legal basis for declining to file. Under the governing rules, counsel may not assume an obtainable market input in the direction preferred by the client. The import revenue is obtainable, but it must be verified. Also, the parties should not begin coordinating or operating as a combined business before closing; that raises separate gun-jumping concerns. --- ## 6. Recommendation Do not proceed without filing based on “probably.” The current verified record already shows a 30% combined share in medical mesh, which is above the 25% share trigger. The conservative and legally safe default is to **file before closing**. Because the import data can be obtained within 10 days and closing is in 35 days, the parties should immediately have the specialist verify: 1. total qualifying import revenue; and 2. seller-by-seller import shares. Conditional recommendation: - If verified imports are **$16 million or less**, the combined share is 25% or higher. **File before closing.** - If verified imports are **more than $16 million**, the share trigger disappears, but the HHI trigger must still be checked. If a reliable seller-by-seller HHI cannot be calculated, **file conservatively before closing.** - If verified imports are high enough that the HHI increase is no longer more than 200 points — roughly **$23.9 million or more** — then the HHI trigger is also not met in this market, assuming the import verification is complete. Management may not rely on the unverified “probable” import range. Obtain the data now, and if the data is not available in time, file.