Academic journal article Journal of Accountancy

After Indopco: The Nature of a Takeover

Academic journal article Journal of Accountancy

After Indopco: The Nature of a Takeover

Article excerpt

The Tax Court's December 1992 ruling in Victory Markets, Inc. is its first decision on deductibility of expenses incurred in a takeover since Indopco (which, in March 1992, concluded expenses incurred in a friendly deal had to be capitalized). Victory Markets differs from Indopco because it explores whether a takeover is hostile or friendly.

Hostile or friendly? Victory received an unsolicited offer from a large, privately held Australian conglomerate. Initially, Victory's board rejected the offer and adopted (but did not activate) a "poison pill" rights plan. Later, the offer was increased and the board promptly accepted it.

The court concluded this was not a hostile takeover attempt. The offer, which was submitted subject to the approval of Victory's board, signaled a desire to proceed in a friendly manner and the suitor at no time attempted to circumvent the board by making a tender offer.

The court minimized the significance of the rights plan's adoption. The fact it was never activated suggested it was adopted as a "bargaining enhancement."

Thus, a takeover attempt apparently is not hostile unless the suitor proceeds with a tender offer. …

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