Biotech Values

[mouton29]

I think you are correct on all counts. Any sale by a corporation of its own stock is not taxable under Code Section 1032. The key is that Newco is selling its stock, PFE is not selling the stock of Newco. The latter would be taxable no matter how much or little stock is sold.

In a spinoff, the distributiing corporatioin must distribute "control" as defined in 368(c), which is defined by reference to 80% of voting power and 80% of nonvoting stock. So it is possible to sell more than 20% by value in the IPO, if the stock is sold is low vote or if the parent keeps some voting preferred. Indeed, it is not uncommon to recapiitalize the corporate structure to fit within these constraints.

However, as you note, if Newco were to sell more than 20%, PFE would not be able to include Newco in its consolidated return and dividends from Newco to PFE would be subject to tax, although PFE would get the benefit of the 70% dividends received deduction. The test here is a little stricter that the test for a spinoff, PFE would need to keep 80% of the vote and value.