Mixing Bowl

While corporations can exchange discrete assets of a similar character in a tax-free "like-kind" exchange, they cannot generally exchange businesses tax-free due to the fact that, under the tax rules, goodwill of a business (whether or not reflected on a company's financial statements) is never of like-kind to goodwill of another business
A mixing bowl structure allows two companies to exchange businesses or dissimilar assets and, if properly structured, receive a strong opinion from the client's outside counsel that no current tax is triggered
The two parties each contribute the assets to be exchanged to a newly created partnership
- Pursuant to the partnership agreement, each company obtains substantially all of the economics and control over the assets contributed by the other party (i.e. the assets it wanted) and relinquishes the economics and control over the assets it contributed itself (i.e. the assets it did not want)
- After a seven-year period, the partnership can be unwound and the exchange formalized, without triggering any taxes
Company A is allocated, for example, 90% of income from and appreciation of Business B; Company B is allocated 90% of income from and appreciation of Business A; each Company is allocated 10% of income and appreciation of Business it contributed
In the discussion that follows, we discuss a somewhat more sophisticated mixing bowl structure which still utilizes mixing bowl technology, but involves the ultimate creation of two separate partnerships; such a structure allows for better definition of control to clarify which assets each company will consolidate for financial reporting purposes
Precedent transactions: LIN Television/NBC, AM General/MacAndrews & Forbes

Transaction Structure

The mixing bowl structure described below, like a conventional mixing bowl, allows two companies to substantially exchange ownership and control of businesses; by isolating Business A and Business B into separate partnerships, this structure provides for greater clarity in financial reporting than a conventional structure.

Step 1	Transaction Steps
	Company A contributes Business A to LLC 1 Company B contributes Business B to LLC 1 Company A receives common equity Company B receives preferred equity
Step 2	Transaction Steps
	LLC 1 contributes Business A to LLC 2 in exchange for preferred equity The preferred equity in LLC 1 and LLC 2 will be participating in profits to a certain extent (e.g. around 5-10% profits percentage) and will reflect a total capital interest of at least 10% Company B contributes cash or other assets to LLC 2 in exchange for common equity
Step 3	Transaction Steps
	LLC 1 distributes its preferred equity in LLC 2 to Company B in redemption of Company B's interest in LLC 1 This structure can be dissolved after seven years, with COmpany B being redeemed out of LLC 1 and LLC 1 being redeemed out of LLC 2
Step 4	Transaction Steps
	Complete separation of ownership and control after seven years

Exhibit 6.4 – Advantages & Disadvantages

Advantages	Disadvantages
Ownership and control of the two businesses are substantially exchanged on a current basis Accounting is simple: Company A consolidates LLC 1, Company B consolidates LLC 2 Control is simple: Company A controls LLC 1, Company B controls LLC 2 Exchange can be fully realized after a seven-year seasoning period	Separation of two businesses is incomplete, due to requirement that preferred equity participates in upside Economic true-up at unwind required to account for changes in valuation over the lives of the partnerships Neither party has monetized its business

Like-Kind Exchange

Monetizing Spin-Off