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Davis Polk & Wardwell helped Comcast Holdings Corp. sell its stake in the television home shopping company QVC Inc. to Liberty Media Corp. for $7.9 billion. Comcast and Liberty had been joint owners of QVC. When Liberty triggered the joint venture unwind provisions, Comcast sold its QVC ownership interests to Liberty for $4 billion worth of floating rate notes, $2.6 billion in Liberty common stock and $1.35 billion in cash. Comcast and another team of Davis Polk lawyers then worked out a transaction in December to turn 100 million of the Liberty shares into cash in an SEC registered transaction. It was a registered prepaid forward agreement with investment banks in which Comcast received cash immediately at about 80 percent of market value, kept a portion of any stock appreciation, and deferred paying income tax on the shares for 10 years, the end of the pre-paid forward period. The transaction was done on a bifurcated basis. One investment bank, Morgan Stanley, entered into the prepaid forward agreement and a different investment bank, Goldman Sachs, managed the short sales to establish the first bank’s hedge. “That’s what was really innovative in the transaction,” said Bruce Dallas, the partner in Davis Polk’s Menlo Park office who structured the transaction. While it’s not unusual to put a transaction out for competitive bid or to use a prepaid forward to defer taxes, he said it is unprecedented to have investment banks make separate bids for doing the derivative transaction and the sales to the market and to do the prepaid forward hedging on a registered basis. Associates David Parento and Yi Sun and New York tax partner Po Sit assisted Dallas on the transaction. Liberty Media was represented by Thomas D’Ambrosio, a partner in the New York office of Baker Botts. Norman Slonaker, a partner in the New York office of Sidley Austin Brown & Wood served as the underwriters counsel. Davis Polk partner Dennis Hersch, in the firm’s New York office, led the team representing Comcast in the sale of its stake in QVC. HEADWATERS INC. Bay Area lawyers at Pillsbury Winthrop and Shearman & Sterling put together a public offering that raised $86.3 million for Headwaters Inc. The offering, which closed on Dec. 23, unloaded 4.75 million shares of Headwaters common stock at $19.50 per share. The deal drew down on a $150 million shelf registration filed with the Securities and Exchange Commission in 2002. The deal was a sort of reunion for the Pillsbury team representing Headwaters and the Shearman team representing lead underwriter Morgan Stanley. The two groups had worked together on Headwaters’ 2002 acquisition of Industrial Services Group Inc. “It helps a lot because they knew the company much better than they would have,” said Linda Williams, the lead Pillsbury attorney, about working with the Shearman lawyers. Headwaters, a South Jordan, Utah-based company, develops and licenses technologies to produce synthetic fuels. A U.S. Senate subcommittee is currently investigating potential abuses of federal tax credits available to companies that produce synthetic fuels. This meant extra due diligence of tax credit issues for all the lawyers involved. “All of that needed to be investigated and understood and disclosed,” said John Wilson, the managing partner of Shearman’s Bay Area offices, who was the lead attorney for the underwriters. It also meant a big role for tax attorneys who typically have limited involvement in public equity deals. Pillsbury’s Williams was assisted by tax partners C. Brian Wainwright and Kerne Matsubara, as well as corporate and securities associates John Nagy and Maryam Sabbaghian and environmental partner Norman Carlin and associate Paula Brosnahan. Shearman’s Wilson was assisted by San Francisco associates Ann Woo, Denise Lew and Stephen Hennessey.

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