Exam 12: Structuring the Deal:

Target Company has incurred $5,000,000 in losses during the past 3 years; Acquiring Company anticipates pre-tax earnings of $3,000,000 in each of the next 3 years. What is the difference between total taxes that would have been paid before the merger compared to actual taxes paid by the Acquiring Company after the merger assuming a marginal tax rate of 40 percent? Show your work.

A transaction is usually taxable to the target firm's shareholders, if the acquirer's stock is used to purchase at least 30% of the target firm's stock or assets.

The form of payment does not affect whether a transaction is taxable to the seller's shareholders.

What is the purpose of the holding company structure adopted by SoftBank in this transaction?

With the purchase of target stock, the acquirer retains the target's tax attributes, but there is no step up in the basis of the acquired assets unless the acquirer adopts a 338 election.