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Breakingviews: Wrong kind of M&A explosion

Thursday, October 30, 2014 - 03:11

The Antares rocket that blew up on take-off is owned by a company trying a $5 bln Morris Trust merger. Antony Currie and Jeffrey Goldfarb discuss how this rare structure attracts problems.

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We'll be exploding rocket have to do with emanate wet hands up and tiring as the rocket that exploded on lift off here today is I'm what Orbital Sciences which is involved in. ADM rather what was unique. And I transaction with my mistrial as to what's what is going on here he is that they had met a bit of a missile round oh it's extremely. Esoteric. Structure used in deals called Morris trust. Where one company. Spins off a division yeah. And then it proceeds to merge with another company puzzle would love the spin off. Right right so that there it's so rare fact that this particular version of it there's no. Recent example for it. But Orbital Sciences is doing it with political wide tax systems and now or metals shares. Fell. Precipitously. After numerous explosion of the concerns about all the but the fact matter is that they're you know there's no opt provisions in the deal to change the terms of stock swap. So there's nothing I mean the companies of course could go back and it really changed is such as this this would surely catch and most of my same material adverse change and no major product a blaze up from. I mean there are risks in this kind of business inherent to that back I mean rockets blow up but. But the idea is you are really good the bigger question is the whole conceit of these things so the one they're doing as marks just more popular version has the reverse Morris trust. Equally arcane only been tried two or three dozen times in the last decade out of you know hundred styles yeah deals. But seems like every time someone tries to use one of these marks structures which are essentially designed to make it tax efficient so that shareholders. Right don't have a big bill to Uncle Sam. They did just always seems to be something goes wrong I'm not necessarily with the structure of the deal. But so we've had Procter & Gamble. Which successfully did two of them yeah and then the third time. Its partner in the reverse Morris trust Diamond Foods. Found itself on a massive accounting giant system and become this company is dance and his if you live ones right now are the same sort of thing. Neighbors is an oil services company is trying to deal with the political team. Of course they executed this reverse Morris justices oil prices have plummeted down both of their stocks have fallen by a third. Has served as the trying to do this. And there are other examples of where the news has been trouble Entergy is as another one that was try to do a reverse Morris trust with another utility. Our local regulators said now we don't want to deal mom again because of the structure in which is that it's a question of whether these things. Our Kirk's been at subway analogy goes and does is it that. One of the best and M I bank is in the country is that he's in the structure present daily the apple tall men he used to run by us bank important Stanley. Has just announced that he's going to be doing one of these things trying to buy Blackstone advisory business front. And I guess some of the point would be if if if it happens to this guy some things should go boy they're really draw on the you know it would I think firmly entrenched the curse of Martin suspect. Jeff thanks so mr. that we will be back with more breaking east mark.

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Breakingviews: Wrong kind of M&A explosion

Thursday, October 30, 2014 - 03:11

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