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US West loses tax appeal
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July 30, 1997: 7:51 a.m. ET
Congress deaf on plea to extend tax break for $4.5 billion AirTouch deal
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NEW YORK (CNNfn) - US West's $4.5 billion plan to sell its cellular phone business to AirTouch Communications Inc. has reportedly been thrown into doubt by the new budget deal in the U.S. Congress.
In the budget deal reached earlier this week, U.S. lawmakers closed a key tax loophole, a tax exemption for so-called Morris Trust transactions. Under that provision, companies could sell businesses in lucrative deals without paying federal taxes. Critics called the measure "corporate welfare."
The companies had planned to use that tax break for their transaction. However, the companies were not able to get legislators to delay the end of the tax exemption, according to reports in two newspapers. The legislation closing the loophole is effective from April 16. The companies officially announced their deal April 18.
Under the plan California-based AirTouch (ATI) planned to acquire New Vector, US West's domestic cellular operation. AirTouch also hoped to buy US West's interest in PrimeCo Personal Communications, an advanced wireless joint venture among three Baby Bell regional phone companies.
As part of the stock swap, AirTouch would assume about $2.2 billion of US West's debt. US West stockholders would also get issues of AirTouch for free.
U.S. West, (UMG), headquartered in Colorado, wanted to focus on its cable and phone operations.
Congress' action significantly raises the cost of the multi-billion dollar deal. The two companies still are hoping for a last-minute exemption. But a top Congressional staffer said the companies wouldn't get special treatment, the Wall Street Journal reported.
The companies have said if they are denied an exemption, they will revert to a 1994 agreement that combines their wireless businesses over several years, the New York Times said.
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