J.P.Morgan Investment Banking Pitch Book
KEY TRANSACTION CONSIDERATIONS
The ability to maintain Kerzner's Bahamian corporate structure
should allow a buyer to not pay tax on Kerzner's income
Issue
■ U.S. companies (e.g., acquirer) are taxed on
worldwide income
Kerzner would pay approximately $43
million in tax in 2006 if taxed as a U.S.
company¹
Depending on arrangement between US
parent and Bahamian subsidiary, earnings
could be subject to Subpart F rules
GAAP requires U.S. acquirer to report book
taxes on worldwide income
APB 23 allows an exception if the cash
(income) is never expected to be
repatriated
1 Based on $122.8 million of estimated pre-tax net income and on the US tax rate of 35%
2 Could represent an addition sources of value to a buyer; this value is not quantified in our
analysis
JPMorgan
Potential responses
■ Do not repatriate cash
No tax if acquirer maintains Kerzner's
existing Bahamian incorporation
Use excess cash flow from off-shore
operations for additional off-shore
investments
Potentially utilize target's $300 million of
U.S. NOLS to offset taxable income from
repatriation²
■ Prohibit repatriation
Use NOLS to offset acquirers existing
taxable income, subject to limitation²
KERZNER INTERNATIONAL 13View entire presentation