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Enron Mail |
A couple questions --
1.=09Could the company include distribution wires as well, instead of being= just a transmission only wires? 2.=09How many shares would a divesting company get? Could this be more tha= t 5%? If so, wouldn't this be over the "control" threshold? In general, I fully support this type of action. =20 Jim=09 -----Original Message----- From: =09Walton, Steve =20 Sent:=09Friday, August 17, 2001 3:56 PM To:=09Steffes, James D.; Novosel, Sarah; Shapiro, Richard Cc:=09Perrino, Dave Subject:=09Transmission Divesture and Tax Policy Jim, Sarah and Rick, =09The following describes the suggestion that I made in our meeting this m= orning. This is a strategy which could only be executed in legislation. = =20 The Problem: One of the chief difficulties of forming a Transco are the tax consequences= of divestiture of assets. The problem was identified in 1995 when we first= started talking about a Transco in the West. If the parties agree in adv= ance of divesture to combine their assets with others into a new company, t= he divestiture creates a tax event. As a result, the Transco's like Allian= ce or TransConnect have adopted an LLC structure to avoid the tax consequen= ces of formation. The problem with the LLC form is the reluctance of the o= wners to surrender all control of their assets to the Managing Member who h= as "little skin in the game." Questions have also been raised by opponents= about the fiduciary responsibilities of Managing Member. Are they to look= out of the financial interests of the owners (passive and active)? All th= ese issues came up when we were working with various companies in 1999-2000= on possible pipe/wire companies. The Suggestion: Create a short window during which utilities could divest their assets into= a Transco without facing a tax penalty. Under such a provision, current o= wners would be allowed to agree in advance to combine their assets to form = a new company without taxes being levied on the spin off, as long as the ne= w company was a transmission only company. The shareholders of the contrib= uting companies would received publicly traded shares in the new company, s= o there is no issue of the original company controlling the Transco. The F= ederal Treasury is tax neutral, since without the provision the Transco doe= sn't form. When the shareholders of Transco sell their shares, the are tax= able, if the Transco becomes more valuable, then the benefit accrues to Tre= asury in taxes on the sale of the stock. With a two year window, the compa= nies would be faced with a one time opportunity to make the shift and avoid= taxes. This become a trigger for breaking up the vertical integration for= which a business case can be made the shareholders of today's owners are b= etter off. =09Thanks for listening (reading). Steve
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