Gilead Sciences and Forty Seven Deal

On March 1, 2020, Gilead Sciences (Gilead) and Forty Seven (Forty) announced that the companies have entered into a definitive agreement pursuant to which Gilead will acquire Forty for $95.50 per share in cash. Both Gilead and Forty are stand-alone C corporations. The transaction values Forty Seven at approximately $4.9 billion.

Assume throughout the next series of questions that Forty shareholders have an aggregate outside tax basis in their shares of Forty of $2.31 billion (i.e., roughly $45 per share). Forty has negligible liabilities and its inside tax basis in its net assets is $350 million. Both Gilead and Forty face a 10% discount rate and a 21% tax rate on ordinary income and capital gains. Forty shareholders face a 40% (20%) tax rate on ordinary income (capital gains). In addition, if any step-up in tax basis is generated, assume that Gilead will be able to amortize it over 15 years for tax purposes.

1 . How much in after-tax cash flows will the Forty shareholders generate from the transaction?

2. What is the cost of this transaction to Gilead?

3. Forty had $400 million in net operating losses at the time of the stock transaction. Assuming that the long-term tax exempt rate was 2.5% in March of 2020, what (if any) is the annual 382 limitation on Forty's losses?