TEXT OF INTERVIEW
SCOTT JAGOW: Last week, the McClatchy newspaper chain sold the Minneapolis Star-Tribune to a private equity firm. McClatchy’s getting a lot less than it paid for the paper a few years ago, but it’s also getting an unusual tax break. Newsweek’s Allan Sloan has been snooping around trying to figure out how McClatchy did it. Alright, Allan, what’d you find out?
ALLAN SLOAN: I found out it’s because of something called a horizontal double dummy.
JAGOW: I’m sorry, horizontal double dummy?
SLOAN: Yes. I can see that you are not into tax law Scott. More the pity . . .
JAGOW: No that could be safely said. OK.
SLOAN: A horizontal double dummy is a term of tax art for a transaction where company A takes control of company B but instead of using a standard thing where the companies merge, you keep the companies separate and you have two, I guess, double companies and it’s what’s called in the trade a horizontal merger. So you have a horizontal double dummy which allowed McClatchy to add a billion dollars to the cost of the Star-Tribune for tax purposes, whereas had it done a normal transaction back in 1998 when it bought the Star-Tribune it wouldn’t be able to get a tax loss.
JAGOW: So is this a common thing? Do a lot of companies use this or no?
SLOAN: It’s not common. And the more I look into this, the more surprised I am that it’s not common because if you’re doing a corporate takeover transaction where you’re paying any significant amount of cash as part of what you’re paying, the double dummy gives you much more flexibility around certain problems. It’s just very interesting that years and years ago when almost nobody was paying attention, McClatchy did this double dummy thing which now saves them $160 million and I just found it because I was frustrated. I couldn’t understand why it was that McClatchy was getting a big tax deduction when I knew if the New York Times sold the Boston Globe, which is now worth maybe half of what it paid, it wouldn’t get a tax deduction and if Tribune sold the L.A. Times, they wouldn’t get a tax deduction. And you know I looked at the contract and I asked a fellow at Lehman Brothers, Bob Willens, why this was and he looked at it and in about 12 seconds said, ‘well it’s a horizontal double dummy.’
JAGOW: Of course!
SLOAN: Everybody knows that.
JAGOW: Thanks a lot Allan.
SLOAN: You’re welcome, Scott.
JAGOW: Allan Sloan is the Wall Street editor for Newsweek Magazine. In Los Angeles, I’m Scott Jagow. Thanks for listening and have a great Monday.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.
Donate now to get almost any thank-you gift.