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sale would have the effect of a poison pill to a hostile
bidder.14 The plan had no adverse tax consequences to
petitioner. Rather, in addition to creating a poison pill, the
plan offered certain tax advantages.15 Petitioner obtained
authorization to sell its assets to a newly formed subsidiary
from the board at its August 1986 meeting. Petitioner, however,
never implemented that plan.
14 Arthur Andersen believed that the installment sale would act
as a poison pill because acquisition of petitioner's stock by a
hostile bidder would, if the hostile bidder made a sec. 338
election, trigger recognition of the unrecognized gain from the
installment sale. The resulting tax would effectively increase
the cost to a potential hostile bidder trying to acquire
petitioner. In the absence of a sec. 338 election, the hostile
bidder would derive no additional depletable tax basis in the gas
reserves and would have little cost depletion in the future to
offset the significant gas revenues that would be received.
15 According to the Arthur Andersen memorandum, the plan would
yield an 18-percent after-tax benefit to petitioner.
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