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The hypothetical or constructive redemptions of shares by
MGM in exchange for UA shares proposed by respondent would differ
in price and form of consideration from shareholder to
shareholder. In the instant case, the Subscribing Public paid
Tracinda $9.18 per UA share in November 1985. Those shareholders
received the full merger consideration when they tendered their
shares in MGM in March 1986.18 Tracinda and certain UA
executives paid $9 per UA share. Such a non pro rata redemption
would appear at a variance with the normal rules for the
governance of public companies.19 Additionally, it leaves
unexplained the $64,533,655 payment made to Tracinda by the
Subscribing Public.20
Finally, respondent's argument adds a step that did not
occur. The addition of the "capitalization" step proposed by
respondent is the type of tax fiction that the step-transaction
doctrine applies to. It is an impermissible attempt to turn
18The Subscribing Public's payment of the additional $9.18
per share in November 1985 is described by respondent as
"Reimbursing Tracinda" (a fellow shareholder) for its costs in
arranging the subscription offering (respondent's deemed
redemption of MGM shares for UA shares).
19Respondent takes the position that such corporate
formalities are "irrelevant" to the tax substance of the
transaction.
20Respondent takes the position: "In substance, this
payment was a nullity. * * * [It] was part of a circular cash
flow that should be disregarded. * * * [Each] subscribing public
shareholder was reimbursed in merger consideration".
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