ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 43

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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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