Looking For Some Winners Winning Big (WB, our client), a public company, operates casinos and racetracks, and produces and sells gaming machines. WB has signed an agreement to enter into a transaction with Bugsy Siegel, a shareholder owning 10 million shares of WB common stock (40% of the common stock outstanding), whereby WB will do the following:

1) Repurchase 8 million common shares of WB from Bugsy for $35 per share, financing the transaction with a combination of bank debt and publicly issued bonds, and

2) Exchange for the remaining 2 million common shares of WB owned by Bugsy (also valued at $35 per share) both (a) 100% of the stock of Paradise City (PC), a holding company purchased one year ago by WB, that operates a racetrack and casino, and (b) WBs 25% interest in Trifecta (T), a racetrack leasing company which receives rentals primarily from racetrack operators. WBs interest in T represents its only interest in racetrack leasing companies. At April 30, 2000, the book value of PCs racetrack and casino (including allocated goodwill of $30 million and intercompany payables of $3 million) was $45 million, and the book value of WBs investment in T was approximately $4 million. Fees for investment bank advisory services, fairness opinions, accountants, attorneys, and printers allocated to the exchange are estimated to total $1 million. Because WB will receive consideration of 2 million shares valued at $35 per share in the agreement (the market price of the stock at the time an agreement in principle between the parties was reached), subtracting out the book values of the net assets of PC and the investment in T, as well as the related fees, results in a pre-tax book gain of approximately $20 million. The net assets included in the exchange for the 2 million shares of WB stock represent a portion of WBs Gaming Operations segment as reported in the footnotes to WBs financial statements. Shareholder and regulatory approval for the transfer of the racetrack and casino have not yet been attained; however, such procedures are usually perfunctory. WB maintains a March 31 year-end. The exchange agreement was signed in May 2000, subsequent to WBs year-end, but prior to the filing of its year-end financial statement.

What kind of arrangement is this disposal?

How is Paradise City classified until disposal occurs?

Could the disposal be a strategic shift, per ASC205-20-45-1c? Explain?

TRIFECTA Could the disposal be a strategic shift, per ASC205-20-45-1c? Explain