A paper discussing Triangular Type A Reorganizations covering key aspects, advantages, disadvantages, tax consequences and three current cases.
The paper defines Type A Reorganization as a statutory merger or consolidation and can be what is termed a forward or reverse triangular merger. It explains that it falls under the category of “acquisitive” reorganizations. Two corporations execute a merger under state law, with shareholders or the target company exchanging target company stock for stock of the acquiring company. The paper covers several issues pertaining to Triangular Type A Reorganizations, including its relation to the I.R.S. and its advantages and disadvantages. The paper also studies three current cases of Triangular Type A Reorganizations: the Comcast-AT&T Broadband merger, Exxon/Mobile, and Chevron/Texaco.
“As with any type of acquisition and merger, there are advantages and disadvantages to all involved parties. In light of the proposed regulations and other recent guidance from the IRS, taxpayers may soon be able to take advantage of the more liberal tax rules of Section 368(a)(1)(A) without compromising many of the business advantages (i.e., having to deal only with target shareholder approval of the merger and being able to hold the target business in a separate legal entity) of a reverse triangular or forward triangular structure. For example, an acquiring company may create a merger subsidiary (S) and a disregarded entity (DRE) and merge S into a target in a reverse triangular merger. The acquirer may then merge S into DRE and the step transaction doctrine should apply to treat the integrated steps as a direct merger of the target into the acquirer.”