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equivalent to Matthew Bender’s value, but without
having paid a tax for the shift in control.
The steps in this structure * * * involve the creation
of a special purpose corporation (referred to as
MB Parent * * *) that is owned partly by Times Mirror
and partly by the acquiring company. This special
purpose corporation is controlled by the acquiring
company through its ownership of relatively low value,
nonparticipating preferred stock with 80% voting
control. MB Parent in turn owns preferred stock and
nonvoting common stock in an acquisition subsidiary
that will merge with Matthew Bender and a nonvoting
interest in a single member limited liability company
that holds the cash referred to above. As a result of
the merger of Matthew Bender into the acquisition
subsidiary, Times Mirror will own all of the common
stock and remaining 20% voting power of MB Parent, the
special purpose corporation. However, even though
Times Mirror will not have voting control over
MB Parent, it will control the limited liability
corporation holding all of the cash by virtue of being
the sole (nonequity) manager of the LLC.
The results are as follows:
• Times Mirror will control the LLC, thereby
controlling the cash in it and any assets or
businesses acquired with such cash.
• Times Mirror and the LLC will be consolidated for
financial reporting purposes.
• The acquiring company will control Matthew Bender
and will be able to consolidate for financial
reporting purposes.
• The merger of Matthew Bender into the acquisition
subsidiary in exchange for MB Parent common stock
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.
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