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Perpetual Partnership Cost Component Analysis
( $ millions )
After Tax Pretax1
Net present value before
transaction costs & advisory fee $25.47 ---
Cost Components:
Origination of Citicorp Notes 1.32 $2.00
Remarketing of LIBOR Notes 1.29 1.95
Preferred returns to partners 0.74 1.12
Premium on debt tender 0.48 0.73
Legal expenses 0.17 0.25
Advisory fee 1.32 1.75
Total 5.32 7.80
Net present value of partnership
investment 20.15 ---
1 In its review of these costs, as part of a separate
document, Colgate translated aftertax amounts into pretax amounts
using a 34-percent marginal rate. The original aftertax estimate
of Merrill's advisory fee ($1.32 million) would imply a pretax
amount of $2 million. The discrepancy between this and the $1.75
million figure reflected in this separate document was not
explained.
The "origination" cost refers to the transaction cost that
the partnership would incur on the exchange of private placement
notes for cash and LIBOR Notes. The remarketing cost represents
the transaction cost that would be incurred on the sale of the
LIBOR Notes. The preferred return was an estimate of the
additional allocation of income that the majority partner was
expected to require. The advisory fee was payable to Merrill for
its services. Colgate's management understood that most, if not
all, of these costs would be borne by Colgate because all the
liability management and tax benefits of the partnership
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