Double Dummy Acquisition Structure

Posted by Bill Sjostrom

Click here for a fairly detailed CFO.com article describing the horizontal double dummy acquisition structure.  This structure is used to achieve favorable tax treatment for the shareholders of the target corporation.  It was used in the AOL/Time Warner, SmithKline Beecham/Glaxo, and Daimler-Benz/Chrysler deals.  It also will be used in the upcoming NYSE/Archipelago and Oracle/Siebel deals. 

Here’s how the double dummy will work in the Oracle/Siebel deal: Oracle formed a new wholly owned subsidiary, Ozark Holding, Inc.  Ozark Holding then formed two new wholly owned subsidiaries, Ozark Merger Sub Inc. and Sierra Merger Sub Inc.  Upon the closing of the deal, Sierra Merger Sub will merge into Siebel, and Ozark Merger Sub will merge into Oracle.  As part of these mergers, Oracle’s shares will be converted into Ozark Holding shares on a one-for-one basis.  Siebel shares will be converted into cash or Ozark Holding stock at the election of the Siebel shareholders, but no more than 30% of the consideration can be stock.  When the dust settles, both Siebel and Oracle with be wholly owned subsidiaries of Ozark Holding.  Ozark Holding will change its name to Oracle Corporation, and its shares will be listed on Nasdaq.

The conversion of both the Oracle and Siebel stock into Ozark Holding stock will qualify for tax free treatment under IRC Section 351. Hence, the deal will not trigger taxes for Oracle shareholders, and Siebel shareholders will only pay taxes on the cash portion of the transaction.  The deal requires shareholder approval by Siebel but not by Oracle because it will be effected through a holding company reorganization pursuant to Section 251(g) of the Delaware General Corporation Law, which provides for the merger of a holding company with and into a direct or indirect wholly-owned subsidiary without stockholder approval.  Click here for the Agreement and Plan of Merger.