ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 32

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          become the target of a hostile takeover or leveraged buyout.                
          This led to the emergence of an "event risk" premium that caused            
          Colgate debt to trade at a discount relative to the price that              
          would otherwise obtain.  In Colgate's opinion, the market was               
          overestimating the risks of holding Colgate's debt.  Thus,                  
          Colgate's debt was undervalued, and an opportunity existed to               
          capture subsequent improvements in its perceived credit quality             
          by repurchasing the debt.  Yet, Colgate's flexibility to respond            
          to this arbitrage opportunity was constrained by the prospect               
          that a significant reduction in its balance sheet liabilities               
          would enhance its appeal to a potential acquirer.                           
               Through the collaboration of Merrill's Swap Group and                  
          Colgate's treasury department, from late July to early October              
          1989, the partnership gradually took shape.  Merrill's first                
          written exposition of the concept, entitled "Colgate Partnership            
          Transaction Summary", dated July 28, 1989, states: "the primary             
          mission of the Partnership is the acquisition and control of                
          Colgate debt".  "Colgate Sub.", "A Corp.", and "B Corp." would              
          contribute $30 million, $169.3 million, and $0.7 million,                   
          respectively.  Colgate Sub. would act as managing general partner           
          with the authority to determine partnership investments.  Over a            
          period of several months, the partnership capital would be used             
          to acquire long-term Colgate debt from investors.  The                      
          partnership would then exchange some of the long-term debt for              
          newly issued Colgate medium-term debt.  Merrill noted that the              




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