No "red magic" for Heinz.(stock redemption)

Journal of Accountancy, August, 2007 by Schnee, Edward J.

Many companies engage in stock buyback programs, or redemptions, often for financial reasons but occasionally for tax purposes. In May, the Court of Federal Claims denied a $42.5 million refund sought by processed-food manufacturer H.J. Heinz Co. for a claimed loss relating to a redemption.

In the early 1980s, Heinz created H.J. Heinz Credit Co. (HCC), a Delaware-based wholly owned subsidiary, to finance subsidiary operations and minimize its state tax burden. In 1994 and 1995, HCC bought 3.5 million shares of Heinz common stock on the open market. It sold 3,325,000 shares back to its parent at their then-fair market value, in exchange for zero-coupon debt convertible into 3,510,000 shares of Heinz. HCC then sold its remaining Heinz shares to an unrelated third...

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