medium · Investment Banking ma-lbo
A buyer is evaluating a target with a book value of $200 million. The buyer offers $500 million in a 'Section 338(h)(10)' election.
Why might the buyer prefer this over a standard stock purchase?
- It allows the buyer to use the target's existing Net Operating Losses (NOLs) without any statutory limitation.
- It allows the buyer to avoid paying a control premium to the target's existing shareholders in the deal negotiations.
- It allows the buyer to step up the tax basis of the assets and claim higher depreciation/amortization tax shields.
- It eliminates all pre-existing liabilities of the target company as a matter of law, regardless of the deal structure chosen.
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