How to handle ATT purchase of Time Warner

The usual way:

"Assuming that the transaction qualifies for the Intended Tax Treatment, the United States federal income tax consequences of the transaction to U.S. holders of Time Warner common stock are as follows: ? a U.S. holder of Time Warner common stock will recognize gain (but not loss) in an amount equal to the lesser of (1) the amount by which the sum of the fair market value of the AT&T common stock and cash received by a holder of Time Warner common stock exceeds such holder?s tax basis in the holder?s Time Warner common stock, and (2) the amount of cash received by such holder of Time Warner common stock (in each case excluding any cash received instead of fractional share interests in AT&T common stock, which shall be treated as discussed below); ? the aggregate tax basis of the AT&T common stock received in the initial merger (including any fractional share interests in AT&T common stock deemed received and exchanged for cash, as discussed below) will be the same as the aggregate tax basis of the Time Warner common stock

-136- Course Supplement Page 6 Table of Contents exchanged for the AT&T common stock, decreased by the amount of cash received in the initial merger (excluding any cash received instead of fractional share interests in AT&T common stock), and increased by the amount of gain recognized on the exchange (regardless of whether such gain is classified as capital gain or dividend income, as discussed below), excluding any gain recognized with respect to fractional share interests in AT&T common stock for which cash is received, as discussed below; and ? the holding period of AT&T common stock received in exchange for shares of Time Warner common stock (including any fractional share interests in AT&T common stock deemed received and exchanged for cash, as discussed below) will include the holding period of the Time Warner common stock exchanged for the AT&T common stock."