In April 1995, Seagram sold 156 million DuPont shares back to DuPont for $8.8 billion to finance its acquisition of MCA. Clever structuring of DuPont's redemption generated tax savings of approximately $1.8 billion for Seagram and DuPont. DuPont captured about $800 million of the total tax benefits in return for facilitating the tax‐saving structure. In spite of tax benefits of approximately $1 billion, Seagram's equity value declined by more than $2.5 billion in response to the DuPont redemption/MCA acquisition. Our analyses provide some evidence that a portion of these wealth effects are attributable to the loss of DuPont's earnings, which accounted for approximately 65 percent of Seagram's reported profits. As part of the financial accounting for the DuPont sale, Seagram recorded a $1.5 billion deferred tax liability and this financial accounting liability appears to be significantly overstated in economic terms.

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