Forbes magazine has an interesting article on how Tom Siebel avoided $58 million in taxes when he sold his company, Siebel Systems, to Oracle.
Normally, the way to avoid taxes in a merger is if the buyout consists of at least 40% stock. But Oracle did not want to issue that many shares.
The solution was to use a legal entity called the "horizontal double dummy". This technique was first used by Unilever in 1978. A tax expert said, "Back in 1978, this was the tax equivalent of inventing penicillin".
The way the Oracle-Siebel thing worked is that a holding company called Ozark Holdings was set up. Ozark then created two subsidiaries (the "dummys").
Oracle merged with one of the dummy subsidiaries in a 100% stock deal, so Oracle stock was swapped for Ozark stock. At the same time, Siebel systems merged with the other subsidiary - this deal was 30% stock / 70% cash.
At that point, Ozark owned both companies. Finally, the subsidiaries were dissolved, and Ozark Holdings was renamed Oracle.
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