A547_Class+13_Introduction+to+M_A.pptx

A547/B732: Strategic Tax Planning Class Session #13Introduction to MA Dave Greene and Ajay Mehrotra December 15, 2014 Lots to do today Lecture on Introduction to MA Preview of Final Exam Course Evaluations Peer Evaluations…survey was posted last Thursday, due by 9:00 this evening, shouldn’t take more than 5-10 minutes to complete (maybe a lot less)…only need to provide evals if a teammate was not “fully as expected” (in either direction) Failure to submit will reduce your participation score Tax drives structure, not deals Exceptions that prove the rule? PepsiCo – Brinks Colombia YR – Cape Fox Corporation (Some) inversions But generally Non-tax reasons are the motivation behind MA, such as…? Taxes along with contingent liabilities and issues relating to property rights drive the way a deal gets structured Two other structural issues not highlighted in the text…A new beginning…MA allows/requires companies to revisit their corporate structure…and their capital structure (debt vs. equity and where that debt “resides”) Tax concepts relating to acquisitions Is there a step-up in AB (or it could be a step-down!)? Is it tax-free (tax-deferred) to the target (T) and its shareholder(s) (SH)? Do the tax attributes of T survive, and if so, who gets to enjoy them, the acquirer (A) or SH? Does leverage produce a tax benefit to A? Deal with the easiest (?) factor first…why leverage matters (it is mostly about tax) Why would paying for an acquisition in part with borrowed funds be a good idea? Leveraged Buyout (LBO) is the normal structure for acquisitions made by PE firms Wait…it gets better if you get a two-fer coupon If wishes were horses…assume that FMV AB Target/Shareholder Acquirer Gain recognition on disposition No Doesn’t care in direct sense, but indirectly… If gain has to be recognized, is it better to have 1 gain or 2 Duh, 1 Doesn’t care in direct sense, but indirectly… AB in assets after acquisition Doesn’t care in direct sense, but indirectly… Greater of AB or