This brings us to the investment in Iscar. On the face of it, Buffet paid $4 billion for 80% of the Israeli metal cutting toolmaker company. Why only on the face of it? Because in actual fact, the sum was a great deal lower.
While the structure of the deal is not known, it seems that Buffett has set up a local company that will acquire 80% of the activity of Iscar from the Iscar group, controlled by the Wertheimer family. The family will retain control over the old Iscar, which will own 20% of the activity. In the next stage, a company will be formed, into which Iscar’s activity will be transferred (by both sides), leaving Buffett with an 80% stake in the new company, which will take in all Iscar’s activity.
Buffett, therefore, is buying activity, rather than company stock. The significance for tax is a benefit of around $1 billion over a 10 year period. Why? Because income tax regulations allow the recognition of amortization of goodwill on deals for acquisition of current activity at an annual rate of 10% of the goodwill. Almost all the sum paid for Iscar’s activity will be attributed to goodwill, resulting in an annual tax-deductible expense of $400 million. This expense will generate a tax saving of $100 million, assuming an effective tax rate of 25% for Iscar (for which it qualifies as a company with approved enterprise status). $100 million over 10 years is the expected saving, amounting to $1 billion.
Daily Archives: May 16, 2006
La Femme: French Politics = Madison’s Political Climate?
There’s a reason that the leaders of France’s Socialist Party are called “elephants”: They live forever. Among the elephants now vying to become the party’s candidate for president in next year’s election are Laurent Fabius, who served as prime minister 22 years ago, and Lionel Jospin, who served as Socialist Party leader a quarter-century ago and suffered a defeat in the last presidential election so devastating, both for himself and for the party, that you would have thought prudence alone would dictate political retirement. But in France, politics is a profession; once you arrive, you stay.
No one has thought to call Ségolène Royal an elephant. For one thing, it would be unbecoming, since she is a woman — and a woman who, when she works her smile up into her eyes, bears a passing resemblance to Audrey Hepburn. Royal is, remarkably enough, the first truly présidentiable woman in French history. But what is most striking about her candidacy, which so far consists of a highly orchestrated media seduction, is not the fact that she is a woman but rather that she has positioned herself as a nonelephant, indeed, almost an antielephant. She is, in effect, running against France’s political culture, which is to say against remoteness and abstraction, ideological entrenchment and male domination itself. And that culture, which is embodied by her own party, has struck back, ridiculing her as a soap bubble borne aloft by a momentary gust of public infatuation.
I was struck by the similarities between the French “Establishment” and the local political establishment vis a vis newcomers/challengers.