![]() ![]() Once this is complete, the private and public companies merge into one publicly traded company. What is a reverse merger deal?Ī reverse merger is when a private company becomes a public company by purchasing control of the public company. ![]() The buyer’s stock is then issued to the seller’s shareholders. In a reverse triangular merger, the acquirer creates a subsidiary that merges into the selling entity and then liquidates, leaving the selling entity as the surviving entity and a subsidiary of the acquirer. ![]() What happens to my stock in a reverse triangular merger? Are reverse triangular mergers taxable?Ī reverse triangular merger, like direct mergers and forward triangular mergers, may be either taxable or nontaxable, depending on how they are executed and other complex factors set forth in Section 368 of the Internal Revenue Code. Is a reverse triangular merger taxable?Ī reverse triangular merger may qualify as a tax-free reorganization when 80% of the seller’s stock is acquired with the voting stock of the buyer the non-stock consideration may not exceed 20% of the total. Recall that in a type B reorganization, the buyer cannot provide any boot consideration.Ī cash out merger (sometimes also referred to as a freeze out merger or a squeeze out merger) results from a merger of two entities in which the shareholders (or stockholders) of the target company (the company being taken over) do not want to be involved with the new company. This allows the buyer to use up to 20% cash and other property. One key advantage of a reverse triangular merger is that only 80% of the consideration used in the transaction must be voting stock. What are the advantages of a reverse triangular merger when compared to AB reorganization? Also, the transaction structure makes it easier to squeeze out minority shareholders or cash out options. One of the reasons to pursue reverse cash or triangular merger is the ability to maintain the target company’s legal status, which helps it preserve contracts and other nontransferable assets. Is a reverse triangular merger good for shareholders? The only consideration you receive in addition to common stock of the acquiring company is cash. ![]() That’s usually the case if at least half the consideration you receive is in the form of stock. The merger qualifies as a “tax-free reorganization” under the tax law. For a reverse merger to qualify as a tax-free reorganization, at least 80 percent of the total consideration must be voting stock of the acquiring company. It is more difficult to structure the deal as a tax-free reorganization under IRS rules. Reverse triangular mergers have disadvantages too. What is the major tax disadvantage of structuring an acquisition as a reverse triangular merger? What are the benefits of a reverse triangular merger?Ī reverse triangular merger allows the acquiring firm to gain control of the target company’s non-transferable assets and contracts which is not always possible with other acquisition techniques. ![]()
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