Hansen Barnett & Maxwell
Memorandum
PME 8/15/2000 DDH
August 15, 2000
FACTS
On June 30, 2000, The Murdock Group (TMG) acquired through its real estate
division, 750.68 acres of raw land in Eagle Mountain, a city in Utah County,
Utah (the "Property"), in exchange for 6,088,584 of its class A common voting
shares (the "Shares") and $1,612,684 in cash. TMG, through its Real Estate
Division, plans to add entitlements to the Property, primarily concept planning
and rezoning, and sell it off to one or more developers over the next 2 years.
TMG acquired the Property from the Smiths by merging with the corporations and
purchasing the other parcels for cash, see below:
The real estate was owned as follows:
G&J Farms, Inc., a Utah corporation which owned 355.7458 acres of the Property,
in exchange for 3,124,824 Shares. This represents 3,124,824 shares of TMG for
each share of G&J.
G.S.F., Inc., a Utah corporation which owned 316.6145 acres of the Property, in
exchange for 2,781,100 Shares. This represents 2,781.1 shares of TMG for each
share of GSF.
These entities, G&J Farms and GSF, Inc., were holding companies which leased the
land to related companies for farming purposes; these entities conducted no
other business activities.
TMG purchased for cash 78.32 acres of additional property held by the following
parties as tenants in common:
Grant B. Smith, 25.71%; $414,636 cash
James E. Smith, 25.71%; and $414,636 cash
Grant Smith Farms L.P., 48.58%, $783,424 cash
These funds were borrowed by the TMG from Clark Real Estate.
The partnership (LP) is owned 61% by the Smiths and 39% by family members.
Immediately after these transactions, the Smiths as the sole shareholders of the
corporations became the owners of 23.51% of the outstanding shares of the
registrant as follows:
Grant B. Smith, 17.29%, and
James E. Smith, 6.22%.
Prior to the transactions neither was affiliated with the registrant.
TMG has entered into a lease agreement
CONSIDERATIONS:
In the transaction stock in TMG was exchanged for stock in G&J, Inc. and GSF,
Inc., to acquire a majority of the real estate purchased. In addition, cash was
paid out to acquire additional acreage.
How should the acquisition of the two corporations be treated, in view of the
merger - stock for stock?
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Should the mergers be treated as consolidations, if the corporations have
operations and those operations were transferred with the real estate, what
effect would that have?
Should the merger be treated as an asset acquisition, if the corporations only
transferred ownership of the property and no operations?
The two corporations were holding companies which leased the land to related
companies for farming purposes; they conducted no other business activities.
CONCLUSIONS:
Based on representations of the Form 8-K filed with the SEC, Chet Nichols,
Controller; and Perry Frandsen, Vice President of the Real Estate Division,
there were no operations in those two corporations and the farming operation of
the Smith family did not transfer to TMG.
Reviewed Article 11 - Pro Forma Financial Information and the definition of what
constitutes a business and SEC Consensus Views, Issue 89-3, for applicability of
asset purchase versus business merger.
TMG has purchased raw land in Utah County. The Corporations that were the
previous owners had no operations in these corporations other than leasing of
the land to their own family partnerships. There were no farming operations in
these corporations and TMG has no intent to farm these lands. TMG has leased
back the land to the corporations and no lease payments are due TMG, as long as
the Smith family continues to farm the land and the property taxes to be paid
are the "greenbelt taxes" rather than the regular property taxes.
As the lease can be cancelled at any time by TMG, no prepaid lease income was
determined to be required to be calculated.
It is our conclusion that this transaction is to be treated as the purchase of
an asset rather than the merger of corporations and having the merging in of
operations and presenting consolidated financial statements.
