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accounting treatment of the partnership was unclear. Despite
Colgate's minority interest, Merrill believed, the partnership
might have to be consolidated on Colgate's financial statements
if Colgate were deemed to control the partnership. Merrill
thought that either result might be advantageous.
By the beginning of October 1989, the design had been
revised in two important respects. First, it had been determined
that the partnership would be most useful if its transactions
were initially kept off of Colgate's balance sheet and its
consolidation with Colgate for financial accounting purposes was
deferred until such time as Colgate acquired a majority interest
in the partnership from the foreign partner. This would enable
Colgate to conceal its activities from the market as well as
choose more advantageous market conditions for retiring and
reissuing the debt. Second, Merrill had devised a mechanism by
which Colgate and the foreign partner could share the credit risk
with respect to partnership holdings of Colgate debt in different
proportions from the so-called treasury (i.e., interest rate)
risk. The efficiency of "allocating to each partner the risks
that it could bear" would make it possible for Colgate to receive
greater benefits from the partnership at less cost. Thus, it was
expected that Colgate could negotiate for the right to
appropriate all the benefit of the improvement in its credit
quality that it expected to occur over time, while negotiating
for an option to vary the partners' relative shares of the
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