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Technology Stocks : Seagate Technology - Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Robert Douglas who wrote (1195)	11/16/1999 11:25:00 AM
From: Kevin Linder	Respond to of 1989

Rob - I am not sure where quite to start. Taxation at the international level is determined by treaties between the two countries. I don't know the treaty specifics as to whether SEG could avoid capital gains taxation treatment on the VRTS shares. If they could though, I think that the whole idea of a merger/acquisition takes on a whole new dimension and could make sense (very good sense!) After all, in many mergers the acquiring company sometimes ends up on top as far as management positions go. I think Luzco and management would contemplate something like this if it is possible. I say that because the VRTS deal indicates that they are flexible and creative in exploring business possibilities. I would enjoy hearing from Stitch or Gottfried about how well they think Fujitsu and SEG would do together. I still say it is a long shot, but there will eventually be consolidation in this industry so hearing about the strengths/weaknesses of the players can be interesting and informative. Kevin Linder

To: Robert Douglas who wrote (1195)	11/16/1999 12:41:00 PM
From: Mark Madden	Read Replies (2) \| Respond to of 1989

Robert, Thank you for the thoughts about income tax on the VRTS stock. I know nothing about foreign taxes and maybe as much about U.S. income taxes, but capital gains seem to need a sale to become taxable. For example, we are not taxed as the value of our portfolio goes up but we are taxed when we sell. After we sell, we establish a basis which comprises all our costs for the item sold. The difference between the basis and the sale price is the taxable amount. If this works the same for corporate capital gains, SEG does not have a tax burden on the VRTS stock unless they sell. The value of VRTS stock to the IRS is still the basis on the balance sheet. The basis is the costs for SEG to purchase software companies, reorganize them, train people, spend capital etc. These are all the costs SEG had to build their software unit. I believe SEG traded 60% of their software unit to VRTS for a percentage of VRTS which was paid in stock. I do not believe this is the same as a sale and no value was changed or established because of a trade. In other words the IRS assumes the percentage of VRTS and 60% of SEG's software unit were equal. When SEG sells the VRTS stock, they will need to pay the difference between the VRTS sale price and the SEG basis (lots). If this is the way it works you are right on. Any large company can buy SEG without paying income tax on VRTS. The IRS has no way of telling how much of the SEG purchase price was for VRTS stock, the desktop business, the tape business, the enterprise unit, the property or any of the other assets until they are sold and a basis is established. Here is a wild example of the way I think it works. Suppose a large company like Hewlett Packard (theoretical example) purchased SEG for $16 billion. They might sell VRTS stock for $7.5 billion, sell Sandisk, Gadzook and Dragon for $1 billion, sell the enterprise disk unit to Fujitsu for $6 billion, sell desktop operations to Sony for $3 billion, sell the tape unit and research for $1 billion, and sell the software unit to AOL for $1 billion. HP may keep $3 billion in cash and securities. HP would need to pay tax on $6.5 billion total gain but the original basis of VRTS would be lost. On the personal level we can get out of capital gains also. All we have to do is die. Our heirs do not have to pay our capital gains. Instead they start out with a new basis. Perhaps some of the tax knowledgeable people on this thread can straighten out my theories. Regards, Mark