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b. Focus on Tax Attributes
As early as May 31, 1996, when Kaye Scholer submitted its
preliminary legal conclusions on MGM, Mr. Lerner had been fully
apprised of the potential of acquiring considerable built-in
losses in an acquisition involving the MGM companies. The Kaye
Scholer memorandum also provided a roadmap to structuring a
partnership transaction that would allow CDR to transfer its
built-in losses (totaling approximately $1.4 billion) to a
purported “Investor” by utilizing a partnership that would fail
to make a section 754 election. According to the memorandum, the
transaction “would increase the amount receivable by CDR over a
straight purchase.”
Mr. Lerner’s first written contact with CDR regarding a
possible deal, a letter dated September 11, 1996, began by
confirming Rockport Capital’s interest in “the U.S. tax
attributes which may relate to the direct and indirect
investments by Credit Lyonnais, S.A., and * * * [CDR] in Metro-
Goldwyn-Mayer, Inc.” The letter goes on to state that “Rockport
wishes to examine the Attributes so that it can propose to the
CDR certain structures incorporating the Attributes * * * which
will be of mutual benefit”. The letter makes no mention of any
films or partnering to conduct any film distribution business.
During the negotiations with CDR, the Ackerman group’s
entire focus was on the banks’ tax basis in the SMHC receivables
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