By Praveen Puri
In 2006, when Tom Siebel sold his company, Siebel Systems, to Oracle, he wanted to avoid having to pay $58 million in taxes.
Normally, the way to avoid taxes in a merger is if the buyout consists of at least 40% stock. But Oracle did not want to dilute its existing shareholders by issuing so many new shares.
They finally decided to make the merger tax free by using a legal entity called the "horizontal double dummy". This technique was first used by Unilever in 1978. A tax expert once said that "back in 1978, this was the tax equivalent of inventing penicillin".
Here is how the Oracle-Siebel horizontal double dummy merger worked:
1. A new holding company called Ozark Holdings was set up.
2. Two subsidiary companies were set up under Ozark Holdings. These were the "dummies".
3. Oracle merged with the first dummy subsidiary in a 100% stock deal. In other words, Oracle stock was swapped for Ozark stock.
4. At the same time, Siebel Systems merged with the other subsidiary. This deal was done in a combination 30% stock and 70% cash deal.
5. At this point, Ozark Holdings now owned both Oracle and Siebel Systems in its two subsidiaries.
6. As a final step, the subsidiaries were dissolved, and then Ozark Holdings was renamed as Oracle.
This shows how, in matters of finance and investing, it's not enough to study who companies merge with. It is also important to watch how these mergers are structured. Large corporations have access to a lot of creative thinkers and tools when it comes to avoiding taxes and not diluting existing shareholders during mergers and buyouts.
Sunday, July 12, 2009
Saturday, July 4, 2009
Investing in Penny Stocks
By Howard Farmer
Investing in Penny Stocks
What do we mean by Penny Stocks? Well it varies depending on country and stock exchange. So, in the U.S. financial markets, the term penny stock commonly refers to any stock trading outside one of the major exchanges (NYSE, NASDAQ, or AMEX). However, the official Securities & Exchange Commission definition of a penny stock is a low-priced, speculative security of a very small company, regardless of market capitalization or whether it trades on a securitized exchange.
Whereas in the UK markets, penny stocks, or penny shares as they are more commonly known, generally refer to stocks and shares in small cap companies, defined as being companies with a market capitalization of less than £100 million and/or a share price of less than £1.
In France, penny stocks generally refer to risky stocks with a price of less than 1 euro.
Big Gains / Big Losses
In the UK, for example, there are many shares on offer at say 5p - it only needs a small movement for potential gains. For example, a small oil stock may find a new exploratory field. News leads to 1p increase in share price - a 20% gain.
Of course, the contrary is true - some bad news can lead to a drop in price, and a fat loss is the result.
Rising Markets
In a rising market speculation in Penny Stocks can be very profitable as the downside is less risky. Using Stop-Loss with such stocks can protect those of a nervous disposition! Penny Shares are popular because of the potential gains. It is not quite stock market investing for dummies, but in a rising market you can make a quick buck.
There have been many examples of Penny Shares providing enormous gains. Pentlands - a penny share many years ago - became a major player in the sports footwear market eventually acquiring Reebok. Their rise was spectacular!
Investing in Penny Stocks
What do we mean by Penny Stocks? Well it varies depending on country and stock exchange. So, in the U.S. financial markets, the term penny stock commonly refers to any stock trading outside one of the major exchanges (NYSE, NASDAQ, or AMEX). However, the official Securities & Exchange Commission definition of a penny stock is a low-priced, speculative security of a very small company, regardless of market capitalization or whether it trades on a securitized exchange.
Whereas in the UK markets, penny stocks, or penny shares as they are more commonly known, generally refer to stocks and shares in small cap companies, defined as being companies with a market capitalization of less than £100 million and/or a share price of less than £1.
In France, penny stocks generally refer to risky stocks with a price of less than 1 euro.
Big Gains / Big Losses
In the UK, for example, there are many shares on offer at say 5p - it only needs a small movement for potential gains. For example, a small oil stock may find a new exploratory field. News leads to 1p increase in share price - a 20% gain.
Of course, the contrary is true - some bad news can lead to a drop in price, and a fat loss is the result.
Rising Markets
In a rising market speculation in Penny Stocks can be very profitable as the downside is less risky. Using Stop-Loss with such stocks can protect those of a nervous disposition! Penny Shares are popular because of the potential gains. It is not quite stock market investing for dummies, but in a rising market you can make a quick buck.
There have been many examples of Penny Shares providing enormous gains. Pentlands - a penny share many years ago - became a major player in the sports footwear market eventually acquiring Reebok. Their rise was spectacular!
Subscribe to:
Posts (Atom)