Santa Fe Pac. Gold Co. v. Comm'r
United States Tax Court
SF was a wholly owned subsidiary of parent P. P spun SF off into a stand-alone entity. Two years after being spun off, SF faced a hostile takeover by competitor N. In order to avoid being taken over, SF entered into a merger agreement with white knight HS. The merger agreement provided for the payment of a termination fee should the agreement be terminated. Shortly thereafter N increased its offer. SF's board accepted the increased offer.
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SF was a wholly owned subsidiary of parent P. P spun SF off into a stand-alone entity. Two years after being spun off, SF faced a hostile takeover by competitor N. In order to avoid being taken over, SF entered into a merger agreement with white knight HS. The merger agreement provided for the payment of a termination fee should the agreement be terminated. Shortly thereafter N increased its offer. SF's board accepted the increased offer. SF paid a $ 65 million termination fee to HS. SF claimed a deduction for the amount of the termination fee on its 1997 tax return, which R disallowed. Held:…
1Opinion of the Court
CONTENTS
FINDINGS OF FACT. 241
A. Introduction . 242
B. Spinoff of the Mining Unit. 242
C. The Mining Industry in General . 243
D. Santa Fe’s First 2 Years . 243
1. Initial Corporate Strategy . 244
2. Becoming Poolable. 244
E. Initial Contacts . 245
F. Initial Contact With Newmont and Homestake. 245
G. November 21, 1996, Santa Fe Board Meeting . 250
H. Newmont Responds to Santa Fe’s Rejection . 251
I. December 8, 1996, Santa Fe Board Meeting . 252
J. Newmont Reacts to the Santa Fe-Homestake Agreement. 253
K. Santa Fe Reacts to Newmont’s Increased Offer . 255
L. The March 7-8, 1997, Santa Fe Board Meeting .…
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