The merger's which have been arranged to avoid takeovers from groups whose announced intention was to spin off a royalty trust have had a greater economic impact than the trusts actually formed. The obvious and immediate beneficiaries of these mergers have been the stockholders of the merged companies who were able to sell their stock at substantially higher prices than the values perceived by the stock market. Apparently the owners of the acquiring companies also benefitted since the purchases provide clear evidence of their desire to have the assets of the merged companies rather than the price which they paid.

In those cases where the trusts were actually formed, the visible beneficiaries are the recipients of the trust shares. Since these distributions usually represent a taxable transaction, government initially benefitted directly and other taxpayers indirectly. However, after this "windfall" of tax revenue, the tax collector begins to lose tax revenues on the royalty income placed in trust since double taxation of corporate dividends on royalty income is eliminated.

Two potential sufferers deserving more sympathy than the tax collector are the employees of the companies involved and the consumer. The harm to the latter would occur if the creation of the royalty trust – or the merger – reduced exploration and development substantially. Such a reduction of funds and the resultant decrease in activities could also harm the employee as a result of personnel decreases.

This paper examines the above facets of the royalty trust issue and provides an evaluation of the causes for the formation of one such trust and the effects on the parties involved.

In addition, it describes the exploration and development activities of the company which spun off the trust before and after the spin off. The future of royalty trusts and the part they could play in further mega-mergers is also discussed.

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