![Pillsbury Winthrop Shaw Pittman
LLP Tax Page [11K]](../images/logoBanner180x165.gif)
Reverse Triangular Mergers:
(a)(2)(E) Reorganizations
This portion of the introduction to the basic
principles of United States federal income taxation of corporate
acquisitions is part of the Pillsbury
Winthrop Shaw Pittman LLP Tax Page, a World Wide Web demonstration project.
Comments are welcome on the design or content of this material.
The information presented is only of a general
nature,
intended simply as background material, is current only as of
the latest revision date, October 15, 2007,
omits many details and special rules and cannot be regarded as
legal or tax advice.
Internal Revenue Code §§ 368(a)(1)(A) and
368(a)(2)(E)
In a reverse triangular merger, a subsidiary ("Sub") of the
acquiring corporation ("Acquiring") merges into the target corporation
("Target"). Acquiring's Sub stock is converted into Target stock and
the
former Target shareholders receive the merger consideration in exchange for their Target stock. This form of
acquisition is often desirable for regulatory or contractual reasons
when
it is important that no transfer of Target assets take place.
(a)(2)(E) Reorganization Diagram
Post-Transaction Structure
These transactions must also still qualify as
A reorganizations, i.e., the merger must
be a "statutory merger or consolidation" and the
general reorganization requirements must
be
satisfied.
Target shareholders can receive Acquiring stock as long as:
- Acquiring is in control of Sub
immediately
prior to the merger.
- After the merger Target holds substantially
all of its properties and substantially
all
of the properties of Sub (other than stock of Acquiring distributed in
the
merger).
- In the merger, the former Target shareholders exchange Target
stock
constituting control of Target for voting
stock of Acquiring.
Note the more restrictive requirements: Acquiring voting stock must
be
used to acquire control of Target. The
escrowed and
contingent stock rules of
A reorganizations apply, but Acquiring voting
stock must generally be used.
Target can transfer all or a part of its assets to a subsidiary
controlled by Target and Acquiring can
transfer its Target stock to a subsidiary
controlled by Acquiring.
Tax
Page |
Acquisition Basics Contents |
Tax Page Search
© 2007
|