March 14, 2006
Proposed Legislation: Morris Trust Deals Could Be Facilitated
According to this article in today’s WSJ, proposed Congressional legislation could ease the restrictions imposed in 1997 on Morris Trust deals. Here is an excerpt from the article: “Structuring mergers and other deals to avoid taxes is a longstanding Wall Street game. One part of that exercise may get easier, thanks to a little-noticed bill pending in Congress that’s getting heavy lobbying support from big investment banks.
If enacted, the bill would significantly ease the rules governing so-called Morris Trust transactions, which restrict how certain corporate deals can be structured to avoid taxes.
Wall Street — led by firms including Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., Bear Stearns Cos., and Merrill Lynch & Co. — is hoping that making it easier to do tax-free transactions will spur more deals.
Investment banks “are betting on a substantial increase in deal activity should this legislation be enacted, as companies will have a much easier time shedding units on a tax-efficient basis,” said Robert Willens, a tax accounting specialist at Lehman. “And that increase, of course, will result in a corresponding increase in fees for the [investment] banks.”
The bill’s prospects aren’t clear yet, though its sponsor, Virginia Republican Rep. Eric Cantor, is well-positioned to push it. Rep. Cantor is the House’s chief deputy majority whip and the only member of the Republican leadership on the Ways and Means Committee, which oversees tax legislation. The congressman plans to try to attach his measure to a bill moving through the legislative process, but he hasn’t decided on which one yet, said Rob Collins, his chief of staff.”