- 15 -
Bernard Cragg, Carlton’s finance director, testified that at the
time Carlton agreed to the purchase price of the acquisition, he
did not know exactly how long Paramount or MGM/UA would remain a
customer, and that Carlton did not have detailed information
relating to Technicolor customers. In addition, with respect to
MGM/UA, documents contemporaneous with the acquisition stated
that Technicolor’s relationship with MGM/UA was “uncertain”. For
example, the disclosure schedule to the stock purchase agreement
and the preacquisition review stated that “MGM/UA is a company in
a state of change”, “Technicolor has no written agreement with
MGM/UA”, and “it is unclear whether Technicolor will receive any
business from MGM/UA at all in the future.” Furthermore, with
respect to Paramount, although it had a history of doing business
with Technicolor at the time of the acquisition, it had been a
contractual customer for less than 2 years. At trial, Earl
Lestz, president of Paramount’s Studio Group, testified that
Paramount never gave Technicolor or Carlton any reason to expect
that Paramount would remain a customer for any extended period of
time. Mr. Lestz’s testimony, the competitive nature of the film
processing market, and Technicolor’s high client turnover rate
before the acquisition, establish that Carlton’s expectation of a
permanent relationship with Paramount was not reasonable.
In short, petitioners did not establish tax bases with
respect to the customer relationships with MCEG, Paramount, and
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011