Tax issue 2

Ｄｉｓｃｕｓｓｉｏｎ　１２

Tax Issues:

How could the long-term assets of a manufacturing company help the tax outlook for a hedge fund that acquires full ownership of the company? Look for real examples over the last couple of years.

In order to conduct attractive Mergers and Acquisitions, we need to expect potential tax benefits which is stemming from net operating loss carryforwards and unused tax credits. If we use tax loss carryforwards, we would estimate future value of tax. Debt finance would be required in this case. However, long-term assets companies such as manufacturing companies tend to make 10% gain of the market value in spite of tax-free transaction. This positive result must be derived from deduction of income tax and loan asset management by acquiring depreciating assets. Hedge fund usually recommends LBO because they specialized in high tax rate acquisitions which are more likely to use debt to finance a transaction. Also government support LBO in term of U.S. Treasury. So it all depends on the company's situation or Tax Act. Their due diligence is for avoiding doubtable liability or risky collaterals. We also need to estimate amortization of goodwill and it can be deducted for tax purposes over a 15-year period. Reorganization plan also should be considered as a usage of voting stock, nonvoting stock, common stock, preferred stock and cash. If we are going to get capital gain in this asset management, this capital gain tax would be paid by common stock. However, the nature of common stock is not immediately taxed on the consideration. As a result, this tax would be deferred for this share and there are so many options to optimaze tax benefits.