Replies to post #129092 on Biotech Values

[DewDiligence]

An immediate post-spin tax-free merger will not trigger 355(e) if either: (i) the merger is not in accordance with a plan, which will be true if there were not substantial discussions prior to the spin…

In the Barron’s piece in #msg-68249557 (see bold-faced portion), the tax specialist mentions a prior two-year period that applies to the test of whether there was an acquisition plan, but your post does not mention such a threshold. Is this 2-year threshold cited in the tax regs, or is it just one person’s (Willens’) opinion as to how long is long enough to be safe?

[DewDiligence]

I skimmed through the [ABT] slide set* and I can't really tell what the business purpose is -- for [IRS code] 355 purposes, there is a distinction between a CORPORATE business and a shareholder business purpose. The fact that investment bankers and the company believe the spin will increase market capitalization is not by itself a corporate business purpose, it needs to be combined with something at the corporate level…

I’m glad you made this point! There is no bona fide business purpose for ABT’s spin-off, which is why I consider it a dumb move (#msg-68135262).

One of the most common business purposes is known as "fit and focus," meaning, the company thinks that management will perform better if each of the two businesses can focus on its individual business. So if the subsequent merger is inconsistent with that purpose, it may cast doubt on the original spin. For example, if fit and focus is the purpose and either the distributing or distributed company proceeds to merge with a diversified company, that seems to me to be a bit inconsistent with the purpose.

Quite interesting. Thanks again.

*See link at the bottom of #msg-68216224.