1. Stephen Fiamma, Brenda Coleman and Richard Evans 26 November 2008 BS:1633511 Tax and corporate considerations in mergers of UK and US companies

2. Structuring UK:US Public Mergers  Basic structural considerations  Use of DLC structures  US tax issues  UK tax issues

3. DLC Overview: Thomson Reuters Thomson Assets Reuters Assets Equalization Agreement Cross Guarantees Combined Business (Not suitable for US companies)

4. Our Transaction(s)  Publicly listed purchaser  Publicly listed target  Consideration is a mix of cash and shares  Use of loan notes?  Financing the acquisition - in the UK or the US?

5. Buying into the US: Forward/Reverse Triangular Mergers Before:

6. Buying into the US: Forward Triangular Merger After:

7. Buying into the US: Reverse Triangular Merger After:

8. UK buying into the US: Basic issues  Issue of shares by a UK PLC requires a prospectus  US merger often requires third party consents  US target shareholder approval  SEC registrations of offeror’s shares  Appraisal (dissenter) rights may be triggered on a merger

9. Buying into the US: Obstacles Posed by US Tax US domestic reorganization (rollover) rules “Toll charge” on “outbound” transactions “Anti-inversion” rules

10. US Domestic Reorganization Rules: Share-for-Share Deals/Sec. 351  Transfers of “property” to corporation tax-free  Transferor group must obtain 80% of vote and 80% of all other classes of stock of transferee  Transferor group must receive “stock” of transferee

11. US Domestic Reorganization Rules: Share-for-Share Deals/Sec. 351 UK Shareholders Target US US Shareholders Acquiror UK UK Shareholders Continuing Acquiror Shareholders US Target Former Target US Shareholders UK Acquiror Former Target UK Shareholders Former Target UK Loan Note Holders 60% 15%25% Former Target US Shareholders NO “80% CONTROL GROUP”

12.  One corporation acquires “control” of another solely for voting stock of acquiror or its immediate parent US Domestic Reorganization Rules: Share-for-Share Deals/“B” Reorganization

13. UK Shareholders Target US US Shareholders Acquiror UK UK Shareholders Continuing Acquiror Shareholders US Target Former Target US Shareholders UK Acquiror Former Target UK Shareholders Former Target UK Loan Note Holders 60% 15%25% Former Target US Shareholders LOAN NOTES ARE “BOOT”

14. “Toll Charge” on Outbound Transactions/Sec. 367  Transactions otherwise tax-free still taxable if an international element  Last clear chance for US to tax  Series of somewhat arbitrary rules which distinguish taxable from tax-free reorganizations  Control of foreign acquiror by US shareholders of target a problem

15. “Toll Charge” on Outbound Transactions/Sec. 367 UK Shareholders Target US US Shareholders Acquiror UK UK Shareholders Continuing Acquiror Shareholders US Target Former Target US Shareholders UK Acquiror Former Target UK Shareholders 20% 55%25% Former Target US Shareholders FORMER TARGET US SHAREHOLDERS CONTROL UK ACQUIROR

16. “Inversion” Transactions/Sec. 7874  Designed to discourage expatriation of companies from US  Looks at ownership of acquiror by all former Target shareholders  60% overlap: Target loses use of tax attributes  80% overlap: Acquiror becomes US resident

17. “Inversion” Transactions/Sec. 7874 UK Shareholders Target US US Shareholders Acquiror UK UK Shareholders Continuing Acquiror Shareholders US Target Former Target US Shareholders Former Target UK Shareholders 20% 60% 20% US Target 20% 60% 60% CONTROL OF UK ACQUIROR BY FORMER TARGET SHAREHOLDERS UK Acquiror

18. “Inversion” Transactions/Sec. 7874 UK Shareholders Target US US Shareholders Acquiror UK UK Shareholders Continuing Acquiror Shareholders US Target Former Target US Shareholders Former Target UK Shareholders 20% 5%75% UK Acquiror

19. “Inversion” Transactions/Sec. 7874 Continuing Acquiror Shareholders US Target Former Target US Shareholders Former Target UK Shareholders 20% 5%75% 80% CONTROL OF UK ACQUIROR BY FORMER TARGET SHAREHOLDERS UK AcquirorUS Acquiror Former Target US Shareholders Continuing Acquiror Shareholders US Target Former Target US Shareholders Former Target UK Shareholders UK Acquiror

20. US buying into the UK

21. US buying into the UK: Basic issues  Transactions are not effected by merger (merger, SEs and EU cross-border merger options exist)  US purchaser will acquire UK target by offer or scheme  Public offer of securities in the UK: FSA-approved prospectus requirement under FSMA  Takeover of a UK PLC is governed by the Takeover Code: offer document requirement

22. US buying into the UK: Offer or Scheme?  Key differences  Target co-operation needed for a scheme  Acceptance levels/apathy and dissent  Flexibility  Timing  Competing bids  Presentation as a “merger”  Recent City Code amendments to scheme of arrangement became effective on 14 January 2008

23. US buying into UK - UK Tax Objectives  Relief for interest in UK (and US?)  Avoid withholding tax in the UK on interest  Minimise stamp duty  Rollover for UK shareholders

24. Interest relief in the UK (I) US UK Bidco UK Target plc  Form UK acquisition vehicle if relief required for funding costs in UK  Place of incorporation of UK Bidco?  UK Bidco can be funded directly by third party or from within group  Check the box on UK Bidco  Hybrid debt

25. Interest Relief in UK (II)  Anti avoidance rules  Transfer pricing.  Para 13, Sch 9 FA 1996, s.787 ICTA 1988.  Arbitrage rules – chapter 4 part 2 F (No. 2) Act 2005.  PBR – Worldwide cap on tax deductions for interest – limited to group’s external finance cost.  Late payment of interest, para 2, Sch 9 FA 1996.  Previous practice: funding bonds.  Late interest payment rule disapplied/legislation awaited.  Group relief (avoid trapped losses).  Withholding tax.  Timing Issues.  Where no Treaty/Directive protection – quoted Eurobond.

26. Stamp Duty  ½% stamp duty on share acquisitions (i.e. offer).  No stamp duty on S.425 cancellation scheme BUT  If cancellation scheme - ensure no impact on rollover relief

27. Rollover – Cancellation Scheme  On a cancellation scheme  Consideration paper need not be issued by bidder  If shares issued, scheme qualifies as a reconstruction and rollover available (even if also cash consideration)  But reclassify shares if mix and match or cash alternative for shares to satisfy “proportionality” requirement  If cash and loan notes offered (and no shares) need to do part transfer and part cancellation scheme to get rollover relief for loan note

28. Rollover - Offer  On an offer  Consideration needs to be issued by acquiring company  ‘Double rollover’ if shares to be issued by US parent  Use of put/call options if double rollover  If loan notes to be issued exchangeable for US shares - non QCBs, if shares to be issued - non UK incorporated Bidco. US Parent UK Bidco UK Target plc Target shareholder loan notes/ shares

29. Dual Headed Structures  Tax treatment of equalisation payments.  Residence issues.  US/UK dual headed structures?

30. Redomiciliation of Topco  Is a UK holding company unattractive?  PBR – foreign dividends exempt.  Uncertainty over CFC rules, still subject to consultation.  New Topco may be Jersey incorporated, Irish tax resident with DAS.  Advantage of structure depends on facts. Topco UK US Other subs

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