Reverse Triangular Mergers:
This portion of the introduction to the basic
principles of United States federal income taxation of corporate
acquisitions is part of the Pillsbury
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The information presented is only of a general
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
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
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
it is important that no transfer of Target assets take place.
(a)(2)(E) Reorganization Diagram
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
Target shareholders can receive Acquiring stock as long as:
- Acquiring is in control of Sub
prior to the merger.
- After the merger Target holds substantially
all of its properties and substantially
of the properties of Sub (other than stock of Acquiring distributed in
- In the merger, the former Target shareholders exchange Target
constituting control of Target for voting
stock of Acquiring.
Note the more restrictive requirements: Acquiring voting stock must
used to acquire control of Target. The
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.
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