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will qualify as a tax-free reorganization for tax
purposes (even though such common stock does not
carry with it voting control).
• MB Parent, the LLC and Matthew Bender will not be
consolidated for tax purposes with either Times
Mirror or the acquiring company.
• At some later date and upon mutual agreement, the
Matthew Bender and MB Parent preferred stock can
be redeemed at face value and the nonvoting common
can be redeemed at a formula price, which would
leave the acquiring company as the sole owner of
Matthew Bender and Times Mirror as the sole, and
controlling owner of MB Parent, with the ability
to liquidate MB Parent and the LLC without a tax
cost.
In a memorandum dated April 29, 1998, E&Y recorded the
following:
Times Mirror has entered into an agreement with Reed
Elsevier for the sale of Matthew Bender for
$1,375,000,000 and the sale of Times Mirror’s interest
in Shepard’s Inc. for $225,000,000. The sale of
Matthew Bender is structured as a reorganization in
which the $1,375 million proceeds from the sale will
end up in an LLC whose ownership is as shown in the
attached chart. Through the various shareholder
agreements, certificates of incorporation and the LLC
management agreement, Times Mirror has total control
over the assets and operations of the LLC and Reed
Elsevier has total control over the assets and
operations of Matthew Bender. The structure is
designed to result in no tax due by Times Mirror on the
profit from the sale of Matthew Bender.
* * * * * * *
Consolidation
* * * Times Mirror controls the assets of the LLC
through the management agreement, which specifically
states that Times Mirror has no fiduciary duty to the
holder of Acquisition Parent and may use its discretion
as to the use of the assets. Times Mirror may have the
LLC buy its own debt instruments or Times Mirror stock,
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