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— Follow the Money —
Aggressive, in this case, refers not to the split-out, or even to the fact that the deal was arranged to make it entirely tax-free for all parties. Rather, Willens is referring to RGA's move to create two classes of stock and then consider recollapsing them in short order. "That's the most interesting thing about this," he notes. Indeed bankers and lawyers close to the deal are already touting the transaction as previously untried. "This is a unique structure," says Michael Ostow, a Morgan Stanley banker who advised RGA. To reiterate: New York-based MetLife announced on June 2 that it would divest its majority stake in RGA. To do so in a way that saves all parties from having to pay taxes, RGA will split its common stock into two classes -- Class A, with the right to elect 20% of the company's directors, and Class B, with the right to elect at least 80%.
This was done, according to Willens, because MetLife technically has to
have a controlling stake in a company that it splits off for the deal
to receive tax-free status.
But as good as a deal as this appears for MetLife, the structure creates a problem for RGA. Namely, it will be hobbled by a dual-class structure. As one banker notes, having two classes of stock can be cumbersome because they create organizational headaches for investor relations groups, as well as bifurcated markets in the stocks, with some classes trading at premiums to others, despite the fact that the classes are identical in every way except voting power. "There's a view that a single class of stock is easier to understand than others," says Dean Shulman, a partner at Skadden, Arps, Slate, Meagher & Flom LLP, which advised RGA on the deal. However, moving from a dual-class structure back to a single class isn't as easy as all that, especially considering that the Internal Revenue Service is involved. In fact, for the tax-free status of the deal to remain intact, the companies have to prove that giving control to MetLife -- in other words, the dual-class structure -- wasn't created as an expedience. In fact, as Willens points out in a research report, corporations that go the dual-class route are usually resigned to living with the structure for at least two years, chiefly to convince the IRS that the dual structure had created what Willens terms "a permanent realignment of voting control." Obviously, collapsing the structure soon after creating it would undermine that idea of permanence, so the company's advisers came up with an interesting solution. Under terms of the deal, after the transaction has been completed, "RGA's board will consider submitting to a shareholder vote a proposal to convert the dual-class structure adopted in the re-capitalization into a single-class structure." However, the company is careful to note in Securities and Exchange Commission filings that there's no guarantee this will happen. "There can be no assurance, however, that RGA's board will consider proposing a conversion or resolve to submit such a proposal to RGA's shareholders and, if submitted, that the RGA shareholders would approve such a conversion." That caveat, says Skadden's Shulman, is important. "It's critical that there's no binding commitment," he says. Or, as Willens says in his report, "RGA is banking on the fact that transactions ... are ordinarily considered independent of one another, and not part of a single, integrated transaction, if the transactions are separated by a 'real and meaningful' shareholder vote and the corporation in question is, as here, a widely held public company." Comments |
"It was a very aggressive move," says tax and accounting adviser Robert Willens, referring to MetLife Inc.'s decision earlier this month to split out a 52% stake in Reinsurance Group of America Inc.
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Les McFall has an interested way to deal with the exception clause in Matthew 19:9. He has written a 43 page paper that reviews the changes in the Greek made by Erasmus that effect the way Matthew 19:9 has been translated. I reviewed McFall's paper at Except For Fornication Clause of Matthew 19:9. I would love to hear some feedback on this position.