- 3 -3
In January 1990, AlliedSignal decided to sell its interest
in Union Texas Petroleum Holdings, Inc. (UTP), an oil, gas, and
petrochemical company. AlliedSignal expected to sell its
interest before February 1991 and to realize a capital gain of
approximately $446,700,000. Robert Luciano, a member of
AlliedSignal's Board of Directors (the Board), informed
AlliedSignal's Chief Financial Officer, John Barter, that Merrill
Lynch & Co., Inc. (Merrill Lynch), an investment bank, had
developed a tax proposal that could create capital losses to
shelter AlliedSignal's anticipated capital gain. Mr. Luciano,
who also served on Merrill Lynch's Board of Directors, further
explained that he was associated with another corporation that
had participated in a similar Merrill Lynch-designed transaction.
AlliedSignal decided to get more information about the
proposal. In February 1990, E.S.P. Das, Merrill Lynch's Vice-
Chairman of Investment Banking, and other Merrill Lynch
representatives, described the plan to Roger Matthews,
AlliedSignal's Assistant Treasurer, and other AlliedSignal
representatives. The proposal, according to Merrill Lynch's
representatives, included the following steps:
1. A partnership is formed by AlliedSignal with a
foreign partner not subject to U.S. taxation.
2. The partnership is capitalized with cash
contributions, primarily from the foreign partner, who
would be the majority partner after the initial
contributions.
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