1 Panelists: Linda E. Carlisle, Miller & Chevalier Chartered Philip B. Wright, Bryan Cave LLP R. David Wheat, Thompson & Knight, LLP David B. Strong, Morrison

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Panelists: Linda E. Carlisle, Miller & Chevalier Chartered Philip B. Wright, Bryan Cave LLP R. David Wheat, Thompson & Knight, LLP David B. Strong, Morrison & Foerster LLP

Practising Law InstituteChicago: April 29 – May 1, 2014New York: May 20-22, 2014San Francisco: June 10-12, 2014

Tax Planning for Domestic & ForeignPartnerships, LLCs, Joint Ventures &Other Strategic Alliances 2014

Interesting Partnership Transactions of the Past Year


Table of Contents

I. Premier IPO

II. Extended Stay Stapled Stock IPO

III. Plains GP IPO – Up-C Structure

IV. Verizon’s Purchase of Vodaphone’s Interest In Verizon Wireless

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I. Premier IPO – Initial Structure

Premier Supply Chain

Improvements, Inc. “PSCI”

Premier Healthcare

Solutions Inc.“PHSI”

1%

PremierPlans, LLC

Premier Purchasing Partners, LP “Premier LP”

99%

Member Owners

100%

100%

Premier is a healthcare performance improvement alliance of approximately 2,900 U.S. community hospitals and 100,000 alternative sites providing supply chain services and performance services. The supply chain services segment includes one of the largest healthcare group purchasing organizations in the U.S. , specialty pharmacy, and direct sourcing activities. The performance services segment includes one of the largest informatics and advisory services business in the U.S. focused on healthcare providers.


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I. Premier IPO – Reorganization/IPO

PSCI

PHSI

1%

PremierPlans, LLC

Premier LP

99%

Member Owners

100%

100%

100%

Merge

Premier, Inc.

Premier Services, LLP

“Premier GP”

Contribute PHSIto Premier LP

Form Premier Inc.and Premier GP

Public

IPO $$$

IPO $$$

IPO $$$

IPO $$$

Premier LP Units

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I. Premier IPO – Resulting Structure

PSCT

Premier, Inc.

20% (Class A Unit Holders)

100%

PremierGP

PremierLP

80% (Class B Unit Holders)

PHSI

PublicMember Owners

VotingTrust


Class A Common20% Voting Power100% Economic

Class B Common80% Voting Power 0% Economics


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I. Premier IPO – Structuring Considerations

A. Structuring Features

1. LLC AgreementDistributions 20% to Class A Units – 80% to Class B Units proportional to Units. Class B Units divided into two Tranches – Class A Tranche – Participation Percentage / Tranche B – Residual – Proportional.

2. GPO Participation AgreementMembers have entered into five year GPO participation agreements where each member owner will receive revenue share from Premier LP 30% of all gross administrative fees collected by the Premier LP based upon purchasing by such member owner’s member facilities through Premier LP GPO supplier contracts.

3. Exchange AgreementClass B Units – Class B Member may sell each year 1/7 of its Class B Units (vested units) to corporation for Common Stock. Unvested shares are subject to purchase at lower of fair market value or capital account in certain circumstances - e.g. member fails to maintain participation agreements.

4. Tax Receivables AgreementMembers receive 85% of the federal and state income tax savings actually realized as a result of the basis increase from the exchange of units. Payments made over the period of the step-up. Payments may be accelerated or terminated in certain cases.


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I. Premier IPO – Tax Issues B. Tax Issues

1. LLC Agreementa) Tranche A Distributions to Class B Members based on Participation

Section 707(a)(2)(A), Rev. Rul. 81-300, 1981-2 CB 143, Rev. Rul. 81-301, 1981-2 CB 144

b) Section 704(b) Allocations – Targeted Allocations

c) Tranche B Allocations to Tax-Exempt Holders – UBIT Exposure

d) Unvested Shares – purchase at lower of capital account or fair market value Capital shift on purchase of Unvested Units

e) Dividend Distributions to Premier LP Section 243 Dividend Received Deduction (80% versus 70%)

2. Section 754 Election and Tax Receivables Agreement

3. Exchange Agreement Tax Characterization

4. GPO Participation Agreement Tax Characterization


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A. Pre-IPO Structure1. ESH REIT LLC was a “private REIT” engaged in the extended stay hotel business.2. In a typical structure for hotel REITs, ESH REIT formed “taxable REIT subsidiaries” (TRS’s) to

operate the hotels.3. The TRS’s enter into a management agreement with HVM LLC (an eligible independent

contractor).

CenterbridgePaulson

Blackstone

ManagementAgreement

ESHHospitality

Holdings, LLC

PropertyOwningEntities

HVM LLC

100SHs

ESH REIT LLC

100% PUs100% CUs

LeaseOperating

Lessees(TRS’s)


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B. Pre-IPO Restructuring1. Sponsors form IPO Corp (to be the operating company).2. ESH REIT, LLC converts to ESH REIT, Inc with two classes of stock: Class A and Class B.3. IPO Corp forms New Operating Lessee to acquire all of the assets of the Operating Lessees.4. IPO Corp forms New HVM to acquire all of the assets of HVM LLC.

Sponsors

Assets

OperatingLessees(TRS’s)

NewHVM

New Operating

Lessee

ESH REIT, INC. IPO CorpHVM LLC

Assets

100%100%

Property Owning Entities


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C. Closing of IPO1. Sponsors transfer 100% of Class A stock of ESH REIT to IPO Corp for IPO Corp common stock (approx. 55%

of the value of ESH REIT).2. IPO Corp issues common stock to the Public and ESH REIT issues Class B shares to the Public for a total of

$566 million; these two shares are stapled and trade as a unit.

Sponsors

ESH REIT, INC.

IPO Corp

Public

Class AStock

Class BStock

Class B Stock

$$

IPO CorpStock


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D. Post-IPO Structure1. Property Owning Entities lease properties to New Operating Lessees.2. New HMV manages the properties.

Sponsors

ESH REIT, INC.

IPO Corp

Public

Class BStock

PropertyOwningEntities

Class AStock

Class BStock

Lease

NewHMV

NewOperating

Lessee


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E. Tax Issues1. Generally Section 269B treats “stapled entities” as a single entity.

a) This would mean testing REIT status on a combined basis.b) Counsel opines that shares “should” not be treated as stapled,

provided the Class B REIT shares represent less than 50% of value of all of the stock of ESH REIT.

2. REIT shares must be freely transferable.

3. Lease from Property Owning Entities to New Operating Lessee must be a true lease.

4. Lease must not result in rent from a related party under Section 856(d).a) REIT cannot own 10% or more of the lessee (by vote or value).b) REIT is not treated as owning stock of IPO Corp. Rev. Rul. 74-605.



A. Pre-IPO Structure1. PAA is a publicly traded MLP that is

engaged in the transportation, storage, terminalling and marketing of crude oil and refined products, as well as the processing, transportation, fractionation, storage and marketing of natural gas liquids.

2. PAA GP is a disregarded entity owned by AAP, a limited partnership controlled by the Existing Owners, which are the various entities and individuals that had LP interests in AAP prior to the IPO.

3. AAP has Incentive Distribution Rights (IDRs) which go to the benefit of the Existing Owners and AAP Management Unit Owners.

4. Some Existing Owners that are either current or former members of PAA’s senior management own their interests in AAP through Management, L.P.

LP (95%)

GP (2%)

GP LLC

AAP

Existing Owners

AAP Management Owners

PAA Public Investors

PAALP (3%)

Incentive DistributionRights(IDRs)

GP (1%)

LP (92.2%)

LP (6.8%)

PAA GP

Manage-ment, L.P.

100%

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B. Formation of IPOCo and the General Partner1. Management, L.P. formed General

Partner and received all member interests in the General Partner.

2. General Partner and Management, L.P. formed IPOCo and received a controlling, non-economic GP interest and LP interests representing 100% of the economics in IPOCo, respectively.

3. IPOCo elected to be treated as a corporation for tax purposes.

Plains GP Holdings, LP

(“IPOCo”)

LP (95%)

GP (2%)

GP LLC

AAP

Existing Owners

AAP Management Unit Owners


PAALP

(3%)


GP (1%)

LP (92.2%)

LP (6.8%)

PAA GP

Manage-ment, L.P.

General Partner

100%

LP (100%) GP (0%)

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C. Conversion and Distribution of AAP Units1. GP LLC’s 1% GP interest in AAP is

converted into (i) a non-economic GP interest and (ii) AAP LP units representing a 1% limited partnership interest in AAP.

2. GP LLC distributed its AAP LP units pro rata to the Existing Owners. GP LLC retains a non-economic GP interest in AAP.

3. The conversion and distribution described above is treated as a distribution under section 731.

Distribution of 1% LP interest in

AAP


(“IPOCo”)

PAA GP

LP (95%)

GP (2%)

GP LLC

AAP

Existing Owners



PAALP

(3%)


GP (1%)

LP (92.2%)

LP (6.8%)

Manage-ment, L.P.

General Partner

100%

LP (100%) GP (0%)

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D. Existing Owners Contributed GP LLC Interests to General Partner1. Existing Owners contributed all

their interests in GP LLC to the General Partner in exchange for (1) 100% of the member interests in General Partner and (2) all of the Class B shares in IPOCo (obtained by General Partner in step #2 below).

2. General Partner then contributed all membership interests in GP LLC to IPOCo in exchange for all the Class B shares in IPOCo. General Partner continued its non-economic GP interest in IPOCo.

3. Management, L.P.’s interest in the General Partner was cancelled.

Contributions of all

interests in GP LLC

100%


(“IPOCo”)

PAA GP

LP (95%)

GP (2%)

GP LLC

AAP

Existing Owners



PAALP

(3%)


GP (0%)

LP (93.2%)

LP (6.8%)

Manage-ment, L.P.

General Partner

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E. The IPO1. On October 15, 2013, IPOCo

sold 128 million Class A shares to the public for $22 each ($2.82 billion total).

2. In a taxable sale, some Existing Owners sold 128,000,000 AAP LP units and an equal number of General Partner units to IPOCo in exchange for the right to receive all the proceeds from the IPO. As a result of the sale of the 128,000,000 AAP LP units, the Existing Owners’ pre-IPO 93.2% LP interest in AAP was reduced to a 73.5% LP interest in AAP.


(“IPOCo”)

PAA GP

LP (95%)

GP (2%)

AAP

Existing Owners



PAALP (3%)


GP (0%)

LP (19.7%)

LP (6.8%)

General Partner

GP LLC

Public IPOCo

Investors

Class A (100%)

Class B (0%) GP (0%)

LP (73.5%)

100%

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III. Plains GP IPO – Up-C StructureF. Post- IPO Structure and Exchange Rights1. Each Existing Owner has an “Exchange

Right” entitling it to exchange (1) its AAP LP Units (along with a like number of Class B shares in IPOCo and units in the General Partner) for (2) Class A shares in IPOCo on a one-for-one basis. The Exchange Right of the Existing Owners provides for future sales of AAP units to IPOCo with a corresponding basis step up because AAP and PAA have made section 754 elections. The Existing Owners capture the value of the tax benefits on exchange through a one-to-one exchange ratio because an IPOCo share represents a larger economic interest than an AAP unit by approximately 7%.

2. If IPOCo remains publicly traded in December 2015, AAP Management Unit Owners will obtain a right to exchange AAP Management Units for Class B shares in IPOCo with an approximately 0.9-to-1 ratio.


(“IPOCo”)

LP (95%)

GP (2%)

AAP

Existing Owners



PAALP

(3%)


GP (0%)

LP (19.7%)

LP (6.8%)

General Partner

GP LLC

Public IPOCo

Investors

Class A (100%)

Class B (0%)

GP (0%)

LP (73.5%)

PAA GP

100%

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G. Benefits of the UP-C Structure1. Existing Owners monetized their economic interest in the

PAA IDRs.2. Structure allows public investors to obtain the benefit of

the PAA IDRs through a C corporation.3. Potential for substantial tax benefits to IPOCo and its

Class A shareholders through basis step up (and increased depreciation) if Existing Owners exchange their AAP units for Class A shares in IPOCo.

4. AAP LP units could be sold by IPOCo or the Existing Owners resulting in a valuable basis step up for the buyer.


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• Transaction involves Verizon’s $130 billion purchase of Vodaphone’s interest in Verizon Wireless (a U.S. partnership).

• One of the largest deals in corporate history.

• Widely reported as though Vodaphone will “pay no tax” and that “tax strategy was key to the deal.”

• So what happened?


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A. Overview1. On September 2, 2013, Verizon Communications Inc. (“Verizon”), Vodafone

Group Plc (“Vodaphone”) and Vodafone 4 Limited, a wholly owned subsidiary of Vodafone (“Seller”), entered into a stock purchase agreement pursuant to which Verizon agreed to acquire Vodafone’s indirect 45% interest in Cellco Partnership d/b/a “Verizon Wireless” in exchange for transaction consideration totaling approximately $130 billion, consisting of the following:

a) Approximately $58.9 billion in cash (subject to a cash election and requirement to pay additional cash if the transaction closes after May 1, 2014);

b) That number of shares of Verizon common stock, par value $0.10 per share, calculated pursuant to the stock purchase agreement by dividing $60.15 billion by the average trading price, and subject to a stock consideration collar mechanism and cash election;

c) Senior unsecured Verizon notes in an aggregate principal amount of $5.0 billion; d) Verizon’s indirect 23.1% interest in Vodafone Omnitel N.V., valued at $3.5 billion; and e) Other consideration valued at approximately $2.5 billion.

2. The acquisition was structured as the acquisition by Verizon of 100% of the stock of Vodafone’s U.S. holding entity, Vodaphone Americas Finance 1, Inc. (“Holdco”) that indirectly held Vodafone’s 45% interest in Verizon Wireless.


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B. The Parties structured the transaction as Verizon’s purchase of Holdco for:

1. Cash ($58.9B);2. Verizon stock ($60.15B);3. Verizon notes ($5.0B);4. Verizon’s Omnitel stake

($3.5B); and5. Other consideration

($2.5B).

Verizon Wireless(U.S. Partnership)

Holdco(U.S. Corporation)

45% PartnershipInterest

Seller(Non-U.S.)

(Luxembourg?)

Vodaphone(Non-U.S. – British plc)

VerizonShareholders

Verizon(U.S. Corporation)


UnwantedAssets

(Non-U.S. Subs)

VodaphoneShareholders

Omnitel NV(Non-U.S.)

23.1%interest


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C. To effect the transaction, the Parties undertook the following general steps:

1. A “Reorganization” (whereby Holdco disposed of certain non-U.S. subsidiaries that Verizon did not want) and related exchange of notes.

2. The “Omnitel Transaction” (whereby Verizon effectively sold its indirect 23.1% interest in Omnitel to Vodaphone).

3. A UK “Scheme of Arrangement” at Vodaphone (whereby Vodaphone recapitalizes / consolidates its share capital and distributes Class B and Class C shares to its shareholders).




Seller(Non-U.S.)(Luxembourg?)


VerizonShareholders



UnwantedAssets

(Non-U.S. Subs)



23.1%interest


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D. Final Structure1. As a result of the

transaction, the following results occurred:a) Verizon effectively owns

100% of the interests in Verizon Wireless.

b) Vodaphone owns 100% of Omnitel NV (which checked-the-box to convert from a corporation to a partnership).

c) Vodaphone paid no U.S. tax and little (or no?) UK tax.

d) Vodaphone shareholders received cash and Verizon shares.




Seller(Non-U.S.)

(Luxembourg?)


VerizonShareholders





69%-71%interest

$and29%-31%interest

100%interests

100%interest

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D. Final Structure (continued)2. In addition, the following

contractual provisions are of note:

a) The parties expressly agreed to treat as a taxable exchange (and not as possibly a reorganization under Section 368 or as an exchange under Section 351).

b) Verizon cannot merge Holdco for 2 years.

c) Holdco must make an election under Section 904(f)(1) to treat any income realized on sale of unwanted assets as U.S. source income so as to reduce, to the greatest extent possible, any “overall foreign loss” (“OFL”).

d) If the Omnitel transaction / liquidation was not completed, and if Verizon was not satisfied that the OFL had been reduced to a de minimis amount, it appears as though Verizon was entitled to receive an indemnity payment of $300mm.

e) Final payment by Verizon to Vodaphone in respect of tax distributions to be made by Verizon Wireless.




Seller(Non-U.S.)

(Luxembourg?)


VerizonShareholders





69%-71%interest

$and29%-31%interest

100%interests

100%interest


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E. Tax Issues / Observations:1. Was there any practical way to do this

deal so that Verizon could have obtained a tax basis step-up?

2. What is Verizon going to do with Holdco and Verizon Wireless (a partnership that it cannot consolidate with its operations)?

3. Tax treatment of “Reorganization” transactions (taxable sales by Holdco) and related exchange of notes.

4. Interesting tax planning with Omnitel liquidation and the Section 901(f)(1) election by Holdco (presumably, Verizon had a large loss in its Omnitel interest?).

5. If Verizon merged Holdco out of existence, presumably it will lose $130B of tax basis (so how best to eliminate the partnership)?

6. Was it ever possible that the transactions could have been a good Section 368 reorganization or a Section 351 exchange? (no, as fixed $ share consideration?)

7. FIRPTA issues for Verizon? (see acquisition agreement)

8. Backlash in UK against Vodaphone?




Seller(Non-U.S.)

(Luxembourg?)


VerizonShareholders





69%-71%interest

$and29%-31%interest

100%interests

100%interest


Documents

1 Panelists: Linda E. Carlisle, Miller & Chevalier Chartered Philip B. Wright, Bryan Cave LLP R. David Wheat, Thompson & Knight, LLP David B. Strong, Morrison