NEW YORK (
' planned acquisition of
could generate a $3 to $5 billion tax windfall that would allow the company to pay for the $3.5 billion deal the day it is completed.
GM will use its past losses to shelter earnings from AmeriCredit. That could presage a host of similar deals by companies that are still rebuilding themselves in the wake of the financial crisis, according to Robert Willens, a well-known corporate tax expert and head of Robert Willens LLC.
GM CFO Chris Liddell briefly alluded to the tax benefits on a public conference call following the deal's announcement.
"AmeriCredit is a taxpayer and clearly under our ownership we would seal those--that taxable income with our tax losses," he said. He gave no specifics, and a company spokeswoman declined to elaborate on his comments.
Accounting rules state that when companies have a better than 50% chance of earning enough money to make use of past losses to offset their tax bill they can claim the losses as an asset, often referred to as a "deferred tax asset." When companies have a history of repeated losses they must take a "valuation allowance" which is recorded as a liability.
Following its emergence from bankruptcy protection at the end of 2009 GM reported a valuation allowance -- which is a combination of previous year losses -- of just over $45 billion.
But if GM becomes consistently profitable again it can reduce the valuation allowance, converting the liability to an asset and giving a boost to earnings and book value.
Chris Brendler, analyst with Stifel Nicholaus, believes AmeriCredit can grow earnings by 10-15% annually as part of GM. That adds up to some $8-12 billion through 2025, the year GM's net operating losses (effectively tax credits from past losses) expire.
Assuming the standard corporate tax rate of 40%, those $8-12 billion of earnings would ordinarily result in a tax bill of $3-5 billion for AmeriCredit. As part of GM, though, AmeriCredit likely won't pay any taxes at all.