GTE-Contel: A Stock-Swap Classic

The $6.24-billion stock-swap merger of GTE Corp. and Contel Corp., which calls for the much-larger GTE to issue 1.27 shares of its common for each of Contel's 160 million shares outstanding, offers the classic stock-swap benefits. It qualifies for pooling-of-interest accounting and is thus tax-...

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Bibliographic Details
Published in:The Institutional investor (U.S. ed.) 1990-09, Vol.24 (11), p.243
Main Author: Schultz, Janine
Format: Magazinearticle
Language:English
Subjects:
Acquisitions & mergers
Case studies
Service introduction
Stock
Swap arrangements
Tax free
Telecommunications industry
Online Access:Get full text
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Summary:The $6.24-billion stock-swap merger of GTE Corp. and Contel Corp., which calls for the much-larger GTE to issue 1.27 shares of its common for each of Contel's 160 million shares outstanding, offers the classic stock-swap benefits. It qualifies for pooling-of-interest accounting and is thus tax-free for shareholders. Since the merger creates no goodwill, the reported earnings for the company, which will keep the GTE name, will be higher than if the purchase-acquisition method was used. Companies in a stock-swap merger must get a ruling from the Internal Revenue Service (IRS) that the transaction will qualify for tax-free status. They must also file proxy statements and receive majority shareholder approval. To qualify as a tax-free reorganization under IRS rules, at least 90% of the target's stock must be exchanged for voting common stock, and the merging companies may not dispose of any assets for 2 years after the merger, with the exception of redundant operations or those that create antitrust violations. The new GTE will be 2nd only to McCaw Cellular Communications in the cellular telephone business.
ISSN:0020-3580