Question

Archer Daniel Midland (ADM) wants to acquire AgriCorp to augment its ethanol.manufacturing capability. AgriCorp wants the transaction to be tax-free for itsshareholders. ADM wants to preserve AgriCorp’s significant investment tax credits andtax loss carryforwards so that they transfer in the transaction. Also, ADM plans on sellingcertain unwanted AgriCorp assets to help finance the transaction. How would youstructure the deal so that both parties’ objectives could be achieved?

ADM is headquartered in Chicago Illinois. Thankyou

Answer 1

to avoid any capital gains taxation for AgriCrop shareholders the suggested way of executing this is to go for a 'Share Swap"

In this case X nos of shares of Agricorp gets replaced with Y nos of shares of ADM.   Since no sale of shares involved there wont be any tax implications .

the acquirer company is generally able to carry forward the tax losses and investment credits of the acquiring company upto a certain time period .So no probs here.

After the acquisition has been executed then ADM can plan to sell off some unwanted businesses which they now own. the valuation of these business sub units might have to be done afresh after the ownership changes. Ideally the sell off should be executed  in such a way that there is minimum tax incidence on ADM , possibly by using the investment credits and tax losses acquired from Agrocorp  post purchase