Tax Notes Publishes Michael Kliegman Article Using Fox-Disney Merger as Case Study of 355(a)(1)(B) “Devices”
Contact:
Akin Gump tax senior counsel Michael Kliegman’s article “Fox-Disney Transaction Presents Opportunity to Apply Device Regs” has been published by Tax Notes.
The article takes as its point of departure Kliegman’s assertion that the proposed merger of the Walt Disney Co. and Twenty-First Century Fox is not a “device” as prohibited by section 355(a)(1)(B) of the Internal Revenue Code. That section refers to transactions “not used principally as a device for the distribution of the earnings and profits of the distributing corporation or the controlled corporation or both.”
In the article, Kliegman traces the development and refashioning of the transaction from the tax perspective, focusing on the “device test.” As he writes, “The device test is ultimately looking to both motivation and opportunity to engage in the classic E&P bailout. The Fox-Disney transaction presented no real problem of device until Disney came in with a second-generation offer that was structurally the same as the original all-stock transaction but with greater value and a cash-stock mix, subject to a Fox shareholder election procedure.”
He concludes his discussion by noting, “Thus, the distribution of New Fox shares by Fox, subject to reasonable debate on whether it fails the device test under the regular factors — including cash in the Disney merger — is covered by what is very close to a safe harbor for transactions that present no possibility of actually being a device because they do not convert dividend income into capital gain. I, for one, would be much more comfortable arguing that the distribution is not a device than that it is.”
To read the full article, please click here.
People Mentioned in This News
