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chart presentations to Colgate management through late October
assumed that $200 million private placement notes would be sold
for $140 million cash and $60 million LIBOR Notes. Around the
time of the formation of ACM, however, it was decided that the
partners could afford to do without a substantial amount of this
internal hedge: $175 million private placement notes would be
sold for $140 million cash and $35 million LIBOR Notes. No
explanation was provided at trial, and none is to be found in the
documentary evidence, of the reasons for the decision. But the
effect was a reduction by 42 percent in the planned level of
interest rate hedging protection and the retention of assets
whose value would not vary with interest rates in a manner that
undercut the effectiveness of Colgate's liability management
strategy.24
At the time the LIBOR Notes were acquired, Colgate had no
intention of using them to reduce Southampton's interest rate
exposure. Its management of Southampton belies any such claim.
Over the first 6 weeks after formation of ACM, Colgate increased
Southampton's share of the Yield Component to 39.7 percent, more
than double its original pro rata share and more than triple its
pro rata share after the distribution of the BFCE Notes. In
conformity with the original plan for a falling interest rate
24 The change did not materially affect the size of the
anticipated tax loss.
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