Presentation:
Corporate Taxation
Chapter Nine: Acquisitive Reorganizations
Professors Wells
March 23, 2015
Chapter 9
Acquisitive Corporate Reorganizations
p. 392
Concept of a “corporate reorganization” – the exchange of an equity
interest in the old corporation for shares in the new corporation.
This is a realization event under §1001(a) but Section 368 “turns off”
recognition for certain reorganizations. Why? Because a
reorganization is a “mere readjustment of a continuing interest in
property, albeit in modified corporate form.”
Effects on tax-free corporate reorganizations:
1) Corporate parties to the transaction – no gain or loss on transfers
of corporate properties.
2) Exchanging shareholders – no gain or loss.
3) Tax attributes are transferred to the acquirer.
2 Acquisitive Reorganizations
p.394
One corporation acquires the stock or assets of another corporation
in exchange for the stock of the acquiring corporation.
Tax-Free Forms of Acquisitive Reorganizations:
1) “A” reorganization – statutory merger
2) “B” reorganization – stock/stock exchange
3) “C” stock for assets exchange, and
4) Certain “triangular” variants (e.g., using an acquisition
subsidiary of Acquirer).
3 Judicial Limitations –
Tax “Common Law”
p.394
1) “Business purpose” doctrine.
2) Continuity of interest (COI) (or ownership) requirement.
3) Continuity of business enterprise (COBE) requirement.
Note: A “step” or “integrated” transaction rule or an “old and
cold” rule also often applies.
4 Concepts of Tax-Free
Corporate Reorganizations
p.395
1) Limit is imposed on the character of the consideration received –
a proprietary interest in the acquirer. Must be stock in the
acquirer (cf., nonqualified preferred).
2) Substantially all the transferor’s properties must be acquired, i.e.,
the operating “business” must be acquired.
3) A business purpose (i.e., non-tax objective) for the transaction
must exist.
5 Tax Code Provisions Re
Tax-Free Reorgs.
p.395
§354 – no gain or loss is to be recognized upon an exchange of shares
by shareholders who are parties to a reorganization. Cf., §351.
§361 – no gain or loss to the acquired corporation. Also, §1032 for
the stock issuance by acquirer.
§356/§357 – treatment of boot received and liabilities assumed in the
transaction.
§358/§362(b) – substitute tax basis rules.
§381 – carryover of tax attributes.
6 How Assure Tax-Free
Reorganization Treatment?
p.396
Options:
1) IRS Private Letter Ruling – but, limited availability, unless a
“significant issue”.
-See Rev. Proc. 2011-3
-See Rev. Proc. 77-37 (fn., p.417) re guidelines for issuing
corporate reorganization tax private letter rulings.
Is this Rev. Proc. “substantive law”?
2) Law firm/accounting firm tax opinion letter.
7 Statutory Merger or Consolidation
p.396
§368(a)(1)(A) For purposes of parts I and
II and this part, the term
T
Shareholders
Stock
“reorganization” means—
(A) a statutory merger or
Target
Merger Acquirer
consolidation;
Target Assets
and Liabilities
(by law)
1) Merger: Shareholders of the target
corporation receive shares of the
T1
T2
acquiring corporation as a Shareholders
Shareholders
Stock
Stock
result of a “statutory merger”
of target into purchaser under Target Merger Acquirer Merger Target
local law (including foreign
Target Assets
Target Assets
and Liabilities
and Liabilities
law) merger statute.
(by law)
(by law)
2) Consolidation: Mergers
of two existing corporations into a third (often new) corporation.
8 Divisive Mergers (i.e., Not “Acquisitive”)
p.397
Rev. Rul. 2000-5 – For tax-free corporate reorganization
treatment the merger must be acquisitive, rather than divisive
(note: divisive transactions are subject to the §355 rules).
Mere compliance with the local corporate law merger statute
(i.e., calling the transaction a “merger”) does not constitute a
merger transaction as a tax-free corporate reorganization.
9 Mergers Involving Disregarded Entities
p.398
Example: Mergers between a corporation and a disregarded
entity.
A) Merger of a target corporation into a disregarded entity (e.g.,
LLC) is treated as a “merger” into another corporation.
Why?
B) Merger of an LLC into a corporation does not qualify (since
only divisional assets are transferred, presumably not all of
the assets of the transferor corp., the owner of the LLC).
10 Continuity of Proprietary Interest
p.399
Southwest Natural Gas Co. v. Commissioner
Merger of Peoples Gas into
Southwest Natural Gas.
Southwest Natural Gas paid
cash, bonds, and stock.
T
Shareholders
Peoples
Gas
Cash
($
Bonds 230,700)
Stock ($340,350)
(FMV=
$5,59
2.50)
Merger
S.W.
Nat. Gas
Taxpayer says that a state law merger occurred and in fact a state
law merger did occur, so why did the taxpayer lose in the Tax
Court?
Held: Fifth Circuit upheld the Tax Court decision stating that 1%
of the consideration to selling shareholders represented a continuing
interest in the resultant enterprise and this was not a sufficient
continuity of interest to justify reorganization treatment.
11 Rev. Rul. 66-224
p.422
50% of Consideration as Stock
Cash
00)
($50,0
X merged under state law into
Y Corporation. Shareholders A B
C
25% 25%
25%
A & B received cash for their
respective 25% interests;
X
Shareholders C & D received
stock for their respective 25%
interests.
Stock
($50,000)
D
25%
Stock
($50,000)
Merger
Y
Held: COI requirement was satisfied.
Alternative: COI requirement is satisfied if each shareholder
received ½ cash and ½ stock (total 50% in the form of stock as the
consideration for the acquisition).
12 What Stock % is Required?
p.402
1) Nelson case (Sup. Ct. – 1935) – 38% nonvoting preferred stock
was OK.
2) To obtain an IRS PLR – Rev. Proc. 77-37 requires a 50% stock
value issuance.
3) Reg. §1.368-1T(e)(2)(v), Example 1 (40% OK).
Larger firm practice seems to be that 40% continuity is the
threshold that taxpayers should maintain in order to be on safe
ground. Perhaps older cases would allow reorganization treatment
with less continuity, but this is risky.
13 Other Continuity of Interest Issues:
p.403
1) Remote continuity – Can assets be dropped down into
subsidiaries by Acquirer and not violate COI test? If two
controlled (80%) subsidiaries?
2) When to measure the COI test compliance (to avoid possibly
violating the COI threshold)?
-Day before the binding contract if a fixed number of shares is to
be delivered.
-Alternative if variable consideration, i.e., shares are increased if
Acquirer’s share value declines.
14 J.E. Seagram Corp. v. Commissioner (simplified)
Reorg. Treatment
p.404
Competing tender offers for
Conoco between Seagram and
DuPont. Neither gets 50%.
DuPont acquires remaining
Conoco shares for DuPont
stock (including the Seagram
shares – purchased previously
for cash). Seagram claims a
loss – but IRS is successful in
asserting that this was a
reorganization (i.e., continuity
of interest did exist).
Step One: Dupont and Seagram acquire
Conoco stock for cash
Cash
Public
Dupont
46%
Stock
Seagram
32%
Stock
Conoco
Step Two: Dupont acquires remaining
54% of Conoco stock (including
Seagram’s stock) for Dupont stock
Dupont
Pre-deal trading not negating
the tax-free status.
Cash
Public Dupont
Stock
22%
Dupont
Tenderor
Seagram
Merger
32%
Conoco
15 Continuity by Historic Target Shareholder
Kass v. Commissioner
p.407
Squeeze-out upstream merger. Track
TRACK
Stock
acquired 84% of ACRA with cash,
10.23% were transferred to TRACK
Kass
TRACK
upon its formation, and 5.82%
84%
16%
transferred as part of squeeze-out
merger. This enabled acquisition of the
Merger ACRA
entire business.
Held: Not a merger – even though Kass received exclusively shares
of Acquirer because 16% shareholder continuity is not enough. The
TRACK shares of ACRA acquired with cash were not “old and
cold.”
Distinction with Seagram: Seagram & Dupont were independent
actors, so Seagram is “old and cold” as to Dupont.
16 Continuity of Interest (COI) Regulations
p.407
Reg. §1.368-1(e)(1)(i). Adopts the Seagram approach.
Disposition of stock prior to a reorganization to unrelated persons
will be disregarded and will not affect continuity of interest in the
acquirer by the exchanging party unless disposed to a person related
to the parties to the reorganization.
Requirement: Exchange Target stock for Purchaser stock and have
at least 50 percent of the entire consideration received being equity.
17 Post-Acquisition Continuity
p.409
How long must the target shareholders hold their stock in the
acquiring corporation after their acquisition?
What is the impact of a pre-arranged stock sale commitment by
majority shareholders?
The COI regulations focus on exchanges between target
shareholders and the purchaser corp.
Sales of stock by the former target shareholders generally are
disregarded (unless made to P).
18 Rev. Rul. 99-58
Open Market Repurchase
Reorganization acquisition
(50/50 stock & cash) followed
by open market reacquisitions
of the Purchaser’s stock
(redemptions? §302(b)(2)).
The purpose of the
reacquisition was to prevent
stock ownership dilution for
the Purchaser.
p.410
Step One: T Merges into P with
shareholders getting 50% T stock and
50% cash
T S/Hs
Ts
toc
k
T
Merger
P
Step Two: P redeems P stock in an
amount equal to amount issued in Step
One
PUBLIC
No understanding that the P
share ownership by the T
P
shareholders would be
transitory.
Held: No impact on the COI status. The post-reorganization stock
redemption is okay if not prearranged with T shareholders and was
19 done as open market transactions.
Continuity of Business Enterprise (COBE)
Bentsen v. Phinney
p.411
Facts: Rio Development merges along
with 2 other land development
companies into a new life insurance
T S/Hs
company. The life insurance company
Ts
toc
k
disposes of the historic business assets
and reinvest the proceeds into a life
Rio Dev.
Life Ins.
Merger
Corp.
Co.
insurance business. Shareholders
received 50% stock in insurance
company and 50% cash. Type of
business carried on by the survivor
entity was the insurance business
(acquirer).
Held: COBE requirement was satisfied – need not engage in the
same business – only some business activity.
20 Rev. Rul. 81-25
Transferor Business Important
p.415
COBE requirement – per IRS:
Look to the historic business assets of
T S/Hs
Ts
toc
the transferor corporation (not the
k
transferee corporation) to determine
P
Merger
T
whether the continuity of business
enterprise (COBE) test is satisfied in
the acquisition transaction.
Reg. §1.368-1(d): “Continuity of business enterprise requires that
the issuing corporation either continue the target corporation's
historic business or use a significant portion of target’s historic
business assets in a business.”
Reg. §1.368-1(d)(4): COBE requirement is not violated if P transfers
acquired T assets or stock to (1) controlled subsidiaries or (2) a
21 controlled partnership.
The “B” Reorganization –
“Solely” Stock-for-Stock Exchange
Stock for stock exchange (completed at
the Target shareholder level):
p.416
Stock-for-Stock Exchange
Step 1: A stock exchange occurs betweenT S/Hs
the Target shareholders and the
Purchaser Corporation (for P or P’s
Target
Parent Shares).
P stock or
P’s Parent Sto
ck
P
T stock
Target
Step 2: The acquired Target
Corporation becomes a subsidiary of the
Purchaser as a result of the stock
acquisition transaction.
22 “B” Reorganization
Limitation on Eligibility
p.417
Solely for voting stock requirement (No “boot” in a B reorganization)
Solely Issues:
1. Creeping acquisitions: cash purchases within 12 months
presumed to be part of plan.
2. Assumption of Target shareholder liabilities & guarantees okay
3. Payment of Target debts to shareholder as creditors are okay if
those payments are made only in their creditor capacity.
4. Target shareholder employment agreements can present issues.
5. Acquiror’s payment of reorganization expenses of Target is
okay, but payment of expenses of Target shareholders is not.
6. Contingent Stock (subject to IRS guidelines).
7. Cash in lieu of fractional shares is okay. Dissenters: Target
redeems dissenters with its own funds (not Acquiror’s funds).
Voting Stock Issues: Preferred voting stock is okay as long as not
nonqualified preferred stock.
“Control “ requirement: 80% control by vote and value after the exchange
and must be met by Acquiring directly (no attribution rules). No need to
“acquire control” only “need control” after exchange.
23 No substantially all requirement allows T to dispose of unwanted assets.
Chapman Case (note 4)
ITT/Hartford
“No Boot in a B”
p.416
Solely for Voting Stock Means “Solely.”
ITT as the Purchaser of Hartford acquires 8% for cash and then
an 80% exchange of “stock for stock” occurs. Held: Cannot
exclude the prior acquisition for cash – if linkage exists. The 8% is
not essentially irrelevant. The entire payment must not contain
any non-stock consideration. On remand, the court was to
consider whether the two transactions were linked.
24 The “C” Reorganization –
The “Practical Merger”
p.419
Acquisition of substantially all the properties of target corporation
by the acquiring corporation, in exchange for all or part of its voting
stock or the voting stock of its parent corporation. Target is
thereafter liquidated.
Target
S/H
Liquidation
Acquiring
Shares
plus any
boot
Target
Acquiring or
Acquiring Parent’s
Shares
Exchange
Target
Assets
Acquiring
25 The “C” Reorganization –
The “Practical Merger”
p.419
Criteria for a valid “C” reorganization:
1) Voting stock of the acquirer or acquierer’s parent is received.
2) A transfer of “substantially all” properties. Case law looks to
“operating assets” while IRS ruling standard is met only if (i)
90% of fmv of net assets and (ii) 70% of gross assets and assets
are acquired. IRS counts assets used in non-routine redemptions.
3) Liquidation of Target with the distribution to the shareholders of
the Acquirer’s stock received.
4) Assumption of some liabilities is permitted.
5) Boot Relaxation Rule: At least 80% of assets must be acquired
with voting common stock.
i. Assumption of liabilities are disregarded if other types of boot
are not received.
ii. Non-Compete and consulting agreements“boot” exception –
but a 20% limitation rule (including the liabilities assumed).
26 Liquidation of the Target Corporation
p.421
§368(a)(2)(G) requires the Target to distribute all its assets
(including the shares of the purchaser corporation) in liquidation.
Possible waiver of the liquidation requirement can be obtained
from the Service. Then treated as if (1) the distribution to Target
shareholders had actually occurred, and (2) the assets were
thereafter contributed to the capital of a new corporation.
27 Creeping Acquisitions
p.421
Prior purchase of stock of the Target – is this purchase transaction
“old and cold”
Purchaser’s prior holding of stock not invalidating the “solely for
voting stock” requirement. See the prior Bausch & Lomb history.
Under the boot relation rule the non-qualifying consideration
cannot exceed 20% of the value of all of the Target’s properties.
Reg. §1.368-2(d)(4)(i) & (ii).
28 Rev. Rul. 67-274
“C” Not a “B” Reorganization
1) Y Corporation acquired X
Corporation shares from X
Corporation shareholders.
2) Y Corporation then liquidated X
Corporation into Y Corp. and Y
then conducted the X business.
p.422
Stock-for-Stock Exchange
followed by X liquidation.
X S/Hs
X
Y sto
ck
X stock
Y
Liquidate
X
Held: A step transaction – not a “B” reorganization, but a “C”
reorganization – i.e., a “stock for assets” exchange.
Why differentiate between the “B” and “C”?
29 Triangular Reorganizations
“A” Reorg followed by drop down.
§368(a)(2)(C)
T S/Hs
T
Merger
P
Parenthetical “B”
§368(a)(1)(B)
Parenthetical “C”
§368(a)(1)(C)
T S/Hs
Ts
toc
k
T
P
P
P Stock
Exchange
Exchange
P Stock
A
T S/Hs
A
T
T
T stock
A
Forward Triangular Merger
(§368(a)(2)(D)
T S/Hs
PS
tock
P Stock
T
Merger
S
Reverse Triangular Merger
(§368(a)(2)(E)
T S/Hs
P
p.423
T stock P
Stock
T
P
P Stock
Merger
S
30 Type A Reorganization:
§368(a)(2)(D) Forward Triangular Merger
1. Advantages over type A type: Parent has Forward Triangular Merger
(§368(a)(2)(D)
flexibility regarding assumption of
PS
liabilities
tock
2. Disadvantages: “substantially all”
P
T S/Hs
requirement limits ability to dispose of
P Stock
unwanted assets.
Merger
3. Qualifies as type A if
A
T
a) Acquiring parent stock is used and
Acquiring Parent controls Acquiring
b) Substantially all of Target assets are
acquired by Acquiring
c) Merger of Target into Acquiring
Parent would qualify as A type
d) Stock of acquiring may not be used
e) Must be merger; cannot be a
consolidation
f) Boot can be used limited only by the
general continuity-of-interest test.
31 Type A Reorganization:
§368(a)(2)(E) Reverse Triangular Merger
Similar to Type B in result, despite Type A
Reverse Triangular Merger
statutory classification. Requirements:
(§368(a)(2)(E)
1. Use of first-tier Subsidiary
T S/Hs
2. Use of Acquiring Parent’s voting stock
P
P
T
stock
3. Acquiring Parent must acquire stock
Stock
P Stock
representing 80% control of Target in the
actual reorganization exchange. Thus, unlike a
S
Merger
T
B reorganization, 80% control must be
acquired as new exchange.
4. Limited boot relaxation rule similar to a C reorganization requirement.
5. Substantially all assets must be acquired
i. Acquiring Sub’s assets are considered
ii. Post acquisition drop down of Target stock or assets permitted
iii. Treatment of Acquiring Parent contributions to Acquiring Sub
iv. T’s distribution of assets to its shareholders counts against meeting the
“substantially all” test.
* On February 12, 2014, Comcast agreed to issue $45 billion worth of its own
stock for all of the Time Warner stock in a reverse triangular merger, thus
beating out Charter Communications competing offer (discussed later).
Comcast divestitures are discussed with in Chapter 10. 32 Multi-Step Transactions
p.426
Objectives in multi-step transactions:
1) Achieve business plan – including regulatory and financial
accounting issues.
2) Tax result based on overall transaction basis.
3) Relevance of Section 338/cash asset purchase transaction
treatment.
Overall objective: (1) get assets & control position acquired; (2)
then, restructure to rationalize operations.
33 Multi-Step Transactions
Rev. Rul. 2001-26
Situation 1: Two Step Acquisition. (1) P
makes a tender offer of P stock for 51%
of T’s stock followed by (2) merger of P’s
sub into T and remaining T shareholders
receive 2/3rd P voting stock and 1/3rd cash
combination. Overall, 83%+
consideration is P stock and cash
accounts for < 17%
p.427
Reverse Triangular Merger
(§368(a)(2)(E)
T S/Hs
T stock P
Stock
T
P
P Stock
Merger
X
Situation 2: S initiates tender offer in step one using P stock.
Held: When segments are integrated at least 80% of the T stock
was acquired for P stock & tax-free reorg. status is available
(under §368(a)(2)(E)).
34 Multi-Step Transactions
Rev. Rul. 2008-25
p.429
1) P forms X (MergerSub) to
Analysis
merge into T. T shareholders If separate transactions, then §368(a)
receive 10x cash and 90x P (2)(E) would apply. But, these steps
voting stock.
are integrated per step transaction
T S/Hs
doctrine principles.
P
T stock P
Stock
Holding
P Stock
X
1. Not a “C” because “substantially
Merger
T
all” T assets not acquired
2) T then liquidates into P (not a
“solely” for P voting stock (even
merger) and then P conducts
considering boot relaxation rule).
the T business.
P
2. Not an “A” because T did not
merge into P.
Liquidate
3. So, taxable gain to shareholder,
T
but not a stock purchase without
35 a §338 election.
Use of Disregarded Entities
AT&T / Direct TV Merger 5/18/2014
1) AT&T forms X (Disregarded
Analysis
Entity). DirectTV merges into X.
T shareholders receive 30% cash What is this?
and 70% AT&T stock ($49 billion)
p.429
Holding
T S/Hs
1. Straight “A” because T merged
P
P
away and is viewed as merging
Stock
P Stock
into AT&T (as X is disregarded.
X
Merger
T
2. Note that if X had been a
regarded C corporation then
2) Question: Why was transaction not
this would have been tested
done as a follows?
under §368(a)(2)(D) which
requires substantially all assets
T S/Hs
P
P
to be retained whereas straight
T stock
Stock
Section 368(a)(1)(A)
P Stock
reorganization does not. 36 X
Merger
T
Problem 1(a)
Nonvoting Preferred Received
FACTS: Each Target shareholders
receive nonvoting preferred with value of
$300,000 per share and $100,000 P-Note.
T S/Hs
p.437
$300,00 Nonvoting Pfd
$100,000 P-Note
Ts
toc
k
T
Merger
P
RESULT: Good §368(a)(1)(A)
reorganization.
1. Continuity of Interest Satisfied: 75% of the consideration is P
stock.
2. The fact that stock is nonvoting preferred is not a problem as
long as the stock is not nonqualified preferred stock.
37 Problem 1(b)
Sufficiency of 40% for COI
p.437
$400,00 P voting c.s.
FACTS: Same as (a) except four T
$400,000 cash
T S/Hs
shareholders (holding 40% of T stock)
Ts
toc
receive $400,000 of P voting common stock
k
while the other six T shareholders
P
Merger
T
(representing 60%) receive $400,000 in
cash.
1. Continuity of Interest Likely Satisfied. 40% continuity is not
enough to meet IRS ruling guidelines (see Rev. Proc. 77-37), but
regulatory example indicates 40% continuity is okay (see Treas.
Reg. §1.368-1(e)(2)(v) Example 1.
2. The fact that some shareholders only receive cash while others
only receive stock is not problematic per Rev. Rul. 66-224.
38 Problem 1(c)
p.437
Decline in Value of P stock Before Closing
$250,00 P voting c.s.
FACTS: Same as (b) except the value of P
$400,000 cash
stock declines between time of execution of T S/Hs
Ts
toc
agreement and closing with the result that
k
the four T shareholders holding 40% of T
P
Merger
T
stock receive only $250,000 of P voting
common stock.
Result: No change. The Continuity of Interest requirement is tested
“on the last business day before the first date such contract is a
binding contract, if such contract provides for fixed consideration.”
See Treas. Reg. § 1.368-1(e)(2)(i).
39 Problem 1(d)
p.437
Continuity of T Shareholders Post-Merger
T merges directly into P, and
60% P
voting c.s.
each T shareholder receives
$400,000 of P voting common Unrelated T S/Hs $400,00 P voting c.s.
stock. Pursuant to a binding
Ts
toc
k
commitment entered into prior
to the merger, six of the former
P
Merger
T
T shareholders (who held 60%
of the T stock) sell their new P
for cash to a third party three weeks after the merger.
RESULT: Treas. Reg. § 1.368-1(e)(1)(i) and -1(e)(6) Example 1(i)
now provide that the subsequent disposition of P stock by former T
shareholders to unrelated parties is generally not considered in
determining whether the COI test is met, even if the dispositions
were pursuant to a preexisting binding contract.
40 Problem 1(e)
Continuity of Business Enterprise
$300,00 Nonvoting Pfd
Same as (a), above, except
$100,000 P-Note
shortly after the merger and as T S/Hs
Ts
part of its original plan, P sells
toc
k
T’s assets to an unrelated party
P
Merger
T assets
T
at a nice profit and uses the
sales proceeds to expand its
professional textbook business.
p.437
X
ANALYSIS: The issue is whether P, a professional textbook
business, is continuing T's historic business, which was the sale of
law student study aids. The fact that P is in the same general line of
business (selling books) as T tends to establish the requisite
continuity, but this fact is not alone sufficient. Reg. § 1.368-1(d)(2)(i).
The COBE requirement may well not be satisfied here unless P can
claim that P is in the “same line of business.”
41 Problem 1(f)
p.437
Prohibition of Any Boot in a B Reorganization
In exchange for their
respective 400 shares of T
stock, P transfers to each T
shareholder $360,000 of P
voting preferred stock and
$40,000 cash.
Stock-for-Stock Exchange
T S/Hs
$360,000 P s
tock
+
$40,000
P
T stock
Target
Target
RESULT: Even though the predominant consideration is P voting
preferred stock (not nonqualified preferred) and P acquired 100%
control of T, the transaction is not a valid Type B reorganization
because P did not use "solely" voting stock. There can be "no boot
in a B." As a result, all the T shareholders must fully recognize
their realized gain.
42 Problem 1(g)
Creeping B Reorganization
p.437
Cash Purchase of 400 T Stock
P purchases 400 shares of T stock
from Dee Minimis for $400,000
$400,000 cash
cash. Three months later, P
T S/H Dee
P
transfers $400,000 of P voting
400
preferred stock to each of the nine
T stock
remaining T shareholders in
Target
Target
exchange for their respective 400
shares of T stock.
Stock-for-Stock Exchange
RESULT: Failed because Dee
$400,000
P stock
purchase is not old and cold. See
P
T S/H 400
Treas. Reg. §1.368-2(c).
T stock
Target
43 Problem 1(h)
Boot Relaxation Rule
Liquidation
Target
P Shares ($3.6 million)
P-Note ($400k)
Exchange
Target Assets ($5 million)
T Liability ($1 million)
P
T Assets
P Shares ($3.6 million)
P-Note ($400k)
T S/Hs
T stock
P acquires all the T assets and
assumes the $1 million liability in
exchange for $3.6 million of P voting
common stock and $400,000 in PNotes. Immediately thereafter, T
completely liquidates, distributing the
P shares and P-Notes to T
shareholders. P drops down the T
assets to S.
p.437
S
RESULT: The P-Notes is problematic here. Under the § 368(a)(2)(B)
boot relaxation rule, P may use up to 20% boot in making the
acquisition, but any transferred liabilities are treated as cash
consideration for this purpose. Accordingly, P is treated as acquiring
72% of T's assets for voting stock and 28% for cash and notes,
causing the transaction to fail as a C reorganization.
44 Problem 1(i)
“Substantially All” Requirement
p.437
T Assets
Liquidation
P Shares ($3.6 million
T Cash ($400k)
T stock
Same as (h), above, except that T
T S/Hs
retains $400,000 of its cash, P
acquires the balance of T’s assets,
P Shares ($3.6 million)
and assumes the liability, for $3.6
P
Exchange
Target
million of P voting common stock,
and T distributes the P shares and
Target Assets ($4.6 million)
T Liability ($1 million)
cash pro rata to its shareholders in
complete liquidation.
S
RESULT: This should qualify as a Type C reorganization.
P transfers solely voting stock and its assumption of T's liability is
not treated as disqualifying boot. § 368(a)(1)(C). The § 368(a)(2)(G)
distribution requirement is met when T completely liquidates. The
principal issue is whether T has transferred "substantially all of its
properties" to P. T has transferred 92% of its gross assets ($4.6
million out of $5 million) and 90% of its net assets ($3.6 million out
45 of $4 million) and all T's operating assets were transferred.
Problem 1(j)
p.437
Multi-Step Acquisitions: A(2)(E) or A Reorg?
Merger
P acquires all the T stock in a reverse
Step One
triangular merger in which Y–1, a transitory
60% Nonvoting Stock
40% cash
subsidiary of P, merges into T. In the merger, T S/Hs
P
four T shareholders (holding 40% of the T T stockStock
& Cash
Cash &
stock) each receive $400,000 cash and the
Stock
other six T shareholders each receive
Merger Y-1
T
$400,000 of P nonvoting preferred stock. T
then merges upstream into P.
Step Two
RESULT: Viewed in isolation, T is acquired
for too much cash for an (A)(2)(E). But, in
P
Rev. Rul. 2001-46, which is discussed in Rev.
Rul. 2001-25, the Service held that the step
transaction doctrine would apply to similar
facts and treated the transaction as a single
T
statutory merger of T into P and thus
46 qualified as a Type A reorganization.
Problem 1(k)
Step Transaction?
p.437
Same as (j), above, except the second step in
Step One
60% Nonvoting Stock
the transaction is a merger of T into Y–2, a
40% cash
T S/Hs
subsidiary of P.
P
T stockStock
& Cash
RESULT: Applying the rationale of Rev.
Rul. 2001-46 to view the two transactions
steps as an integrated whole, the end result
is that T merges into P’s subsidiary (Y-2).
Viewed as such, this transaction should
qualify as a §368(a)(2)(D) forward
triangular merger.
T
Merger
Cash &
Stock
Y-1
Step Two
P
T
Merger
Y-2
47 Consider:
Wisconson Energy (WEC) / Integrys Energy Group (TEG)
WEC wants to acquire TEG. WEC forms MS#1 to merge into TEG
with T Public shareholders receiving 76% stock and 24% cash. As
part of a binding commitment, T is merged into MS#1.
Step Two: TEG merges into
S as part of binding
commitment.
Step One: MS#1 merges into TEG with
T’s shareholders receiving 24% cash
and 76% as WES stock.
T Public
T stock
TEG
26% Cash
+
76% Stock
WES
WES
Merger MS#1
End Result: P acquires T
with 14% stock
WES
S
S
TEG
Merger
S
Merger
TEG
Business
Question #1: What is the tax treatment if the two steps are treated
as independent steps?
Question #2: What is the tax treatment if the two steps are
integrated?
48 Question #3: What is the right characterization?
Problem 1(l)
Multiple Acquisitions
Same as (j), above, except the second step is
the complete liquidation of T into P in a
transaction that is not a statutory merger
under state law.
p.438
Step One
60% Nonvoting Stock
40% cash
T S/Hs
P
T stockStock
& Cash
RESULT: Under Rev. Rul. 2008-25, the IRS
would treat this integrated transaction as a
failed Type C reorganization (the flaw being
that none of the consideration consisted of P
voting stock). The integrated transaction also
could not be treated as a Type A
reorganization because T did not merge into T.
T
Merger
Cash &
Stock
Y-1
Step Two
P
Liquidate
T
49 Problem 1(m)
Multiple Acquisitions
Same as (j) above, except T is a wholly owned
subsidiary of S, Inc. Y–1 merges into T and, in
the merger, S, Inc. receives $500,000 cash and
$500,000 of P nonvoting stock. P and S jointly
make an election under § 338(h)(10).
p.438
Step One
50% Nonvoting Stock
50% cash
S
P
T stock
Merger
RESULT: Treas. Reg. §1.338(h)(1)-1(c)(2)
Merger Y-1
T
provides that the step transaction doctrine will
not apply to a multi-step acquisition if the first
step is a qualified stock purchase and the parties Step Two
P
make a §338(h)(10) election. Old T recognizes
gain/loss on the deemed asset sale. New T takes
a cost basis in the T assets. S does not recognize
gain or loss on the T stock sale. The merger of T
into P is tax- free liquidation under §332 and
T
§337. See Reg. § 1.338(h)(10)-1(e)
50 Examples 11 and 12.
Problem 2
Creeping Acquisition
P purchased 10% of T’s stock five
years ago for cash and purchased an
additional 50% of T’s stock one year
ago for cash. P now wishes to acquire
the remaining 40% of T’s stock for P
voting stock or, if possible, P
nonvoting preferred stock.
p.438
1. 5 Years Ago: 10% cash
2. 1 Year Ago: 50% cash
3. Now: 40% for P voting or
nonvoting stock
T S/Hs
P
T stock
Target
Target
RESULT:
1. If T merges into P, then it should be a good A reorganization even
if prior year 50% stock acquisition is not “old and cold.”
2. If T is liquidated into P, then fails as a C reorganization if the
prior year 50% stock acquisition is not “old and cold.”
3. If T is not liquidated, then fails as a B if prior year acquisition is
not old and cold
51 Acquisitive Reorganization
Treatment of the Parties
Consider the income tax treatment resulting from a tax-free
corporate reorganization for the following parties to that
reorganization:
1) The shareholders of the Target Corporation.
2) The Acquiring Corporation and any Acquisition Subsidiary.
3) The Target Corporation.
52 Acquisitive Reorganization
Treatment of the Parties
Target Shareholders
• Shareholders exchange of stock-forstock or securities-for-securities is
generally given nonrecognition
treatment. §354(a).
• Gain recognized in an amount equal
to the lesser of the boot received or
built-in gain in the stock. §356(a).
• Gain is treated as a dividend to the
extent provided in section 301 and
then as capital gain. §356(a). Note
discussion of Clark (p.440).
• Basis in new stock takes substitute
basis, increased by any gain
recognized and reduced by any boot
received and liabilities assumed under
Section 358(a)(1).
• §1223(1) gives tacked holding period.
Target
• Transfer of target assets & liabilities is
tax-free to target. See §361(a) & §357(a).
• Boot received is non-taxable to Target if
Target distributes the boot but taxable if
not distributed. §361(b).
• If Target retains some historic Target
assets and distributes them to Target
shareholders, then Target recognizes
built-in gain. §361(c).
Acquirer
• No gain or loss on shares issued. §1032.
• Target assets take carryover basis,
increased by gain recognized by Target.
§362(b). Exception: §362(e)(1) prevents
built-in losses from being imported to
Acquierer.
53 Commissioner v. Clark
p. 440 (n.10) Code §356(a)(2)
Code §368(a)(2)(D) reorganization.
Received 300,000 P shares and $3.25
mil. cash. Could have received
425,000 P shares.
Result: Deemed to have received
425,000 shares and then post-merger
to have exchanged 125,000 shares for
cash. Applying §302 testing after the
T shareholders are considered P
shareholders makes the hypothetical
redemption to be more likely not
essentially equivalent to a dividend.
T Shareholders “Deemed to
Only Receive P Stock “First”
T S/Hs
P Stock
T stock
T
Merger
P
A
T Shareholders “Deemed to
Only Receive P Stock “First”
Historic
P S/Hs
T S/Hs
Cas
h
Hyp
o
P St
ock
P
54 Characterization of Boot as
Dividend or Capital Gain
p.442
“Boot within Gain Rule” Boot dividend is limited to the gain
amount. §356(a)(2) – (dividend within gain)
Tax rate of 20% on both dividend and long-term capital gain
reduces tax significance; but:
1) The Clark approach reduces the opportunity for a dividends
received deduction (DRD) for a corporate T shareholder.
2) Boot gain is received in form of installment notes – not if
dividend characterization applies.
55 Basis and Holding Period for
Target Shareholders
p.442
§358 – basis in the stock received is derived from the basis of the
stock transferred.
However, boot takes a fair market value basis.
What about multiple “tax lots” for shares received? Tracing or
prorata allocation? Allocation to each block of stock is required.
Average basis method not available – Cf., basis reporting by
brokers - §6045(g) regulations (effective in 2011).
56 Target Corporation
Consequences - Issues
p.444
§361(a) – no gain or loss is recognized by Target on the transfer of
assets in the reorganization transaction.
§357(a) – assumption of the target’s liabilities is not treated as
boot.
These rules apply to (1) “A” & “C” reorganizations, and (2)
forward triangular mergers; but, not for “B” reorganizations, or
reverse triangular mergers, since stock, no assets, is acquired in
these transactions.
57 Shareholder Distribution
Tax Effects to the Target
p.445
No gain or loss is recognized to Target when it distributes
“qualified property”. See §361(c).
“Qualified property” requirement is under §361(c) – stock of the
other party in the reorganization.
Distribution of other than “qualified property” – e.g., boot – gain
recognition on the distribution is required. §§361(c)(1) & (2) (but
prior step-up when transferred by P to Target)?
58 Acquiring Corporation
Asset Reorganization Consequences
p.447
§1032(a) – issuance of Acquiring shares or Acquiring Parent’s shares
is not a taxable event. Same result if issuance of debt securities by
the acquirer occurs. But, transfer of “boot” causes any realized gain
or loss to be recognized under general tax principles.
Tax basis for assets received by Acquirer:
§362(b) carryover from the transferor. §1223(2) provides a tacked
holding period.
This relevant in acquisition of target’s assets:
“A” or “C” & forward triangular merger.
59 Acquiring Corporation
Stock Reorganization Consequences
p.447
§362(b) provides that the basis of stock or securities received by the
Acquiring Corporation will be the same as the basis was in the
hands of the Target shareholders.
Practical Problem: How does Acquiring Corporation find out what
is the tax basis of the hundreds of thousands of publicly traded
Target shareholders? In Rev. Proc. 2011-35, the IRS set forth
detailed rules for the allowance of statistical analysis.
60 Acquiring Corporation
Triangular Reorganization
p.448
Treas. Reg. §1.358-6(c) provides that Parent’s stock basis is equal
to T’s net asset basis plus any preexisting basis that P had in its S
stock
61 Problem 1(a)
“A” Reorganization
p.449
T merges into P in a qualified Type A
400x P voting
10
100x P Nonvoting Pfd
reorganization. Each T shareholder receives
T S/Hs T
4,000 shares of P voting common stock
st
(B=
20 ock
FMV
(FMV=$40,000) and P nonvoting preferred
=50
)
stock (not ‘‘nonqualified preferred stock’’)
P
Merger
T
(FMV=$10,000). What if the P nonvoting
Assets
Acc. E&P (500)
preferred were nonqualified preferred stock? T(B=300
FMV=500)
Acc. E&P (100)
RESULT: Good A reorg.
1. T's shareholders qualify for nonrecognition because they receive
solely P stock for T stock. § 354(a). Each T shareholder will take
a substituted basis of $20x allocated according to relative FMV.
§358(a)(1); §358(b)(1); Reg. § 1.358-2(a)(2)(i). The holding
period of the old stock is tacked onto the new stock. §1223(1).
2. T and A Corporations. T has no gain and its E&P carries over to
P. §361(a); §381(a). P takes a $300,000 transferred
62 basis in T assets and a tacked holding period. §362(b); §1223(2).
Problem 1(b)
Securities in Exchange
p.449
P voting
(b) Same as (a), above, but instead of the
10 400x
100x Securities
preferred stock each T shareholder receives T S/Hs
(B= T stoc
20–year market rate interest bearing B notes
20
FMVk
=50
)
with a principal amount and fair market
P
value of $10,000 ($100,000 total).
Merger
T
T Assets
RESULT: Same except as follows-Acc. E&P (500)
(B=300 FMV=500)
Acc. E&P (100)
1. Securities are boot causing T
shareholders to recognize gain under §356(a)(1).
2. Boot is capital gain under Clark/§302(b)(1) analysis.
3. The hypothetical redemption of T shareholders should permit a
reduction to P’s E&P under §317(n)(7).
63 Problem 1(c)
Securities as “Boot”
p.449
P voting
Same as (b), above, except that two of the
10 400x
100x Securities
shareholders receive all the notes (with a
T S/Hs T
st
(B=
principal amount and fair market value of
20 ock
FMV
=50
)
$100,000), and the remaining eight
P
shareholders each receives P voting common
Merger
T
stock worth $50,000 ($400,000 total).
T Assets
Acc. E&P (500)
(B=300 FMV=500)
RESULT: Same except as follows-Acc. E&P (100)
1. T shareholders who only receive stock have nonrecognition
under §354(a)(1), a $20,000 exchanged basis in their new stock
under §358(a)(1) and a tacked holding period under §1223(1).
2. T shareholders who receive securities do not qualify for
nonrecognition under §354. See §354(a)(2)(A). Their gain is a
capital gain under §302(a). See Treas. Reg. §1.354-1(d) Ex.(3).
3. T and P have same consequences as in 1(b).
64 Problem 1(d)
p.450
What E&P is used to Test for Dividends?
Same as (b), above, except that T had
$50,000 of accumulated earnings and
profits.
P voting
10 40x
10x Securities
T S/Hs T
(B=
st
20 ock
FMV
=50
)
T
Merger
P
Result: The question is interesting if
T Assets
Acc. E&P (50)
there were a T shareholder who
(B=300 FMV=500)
Acc. E&P (100)
would have the boot taxed as a
dividend. In Clark, the parties stipulated that the E & P of the
target would be the sole measure of any dividend and, in fact, the
$3.5 million boot received by Mr. Clark exceeded the target's $2.3
million earnings and profits, limiting Mr. Clark's dividend (in the
IRS's view) to $2.3 million without regard to the acquiring
corporation's earnings and profits. But, the rationale of Clark
suggests that the E&P of both T and P should be taken into account.
65 Problem 1(e)
Basic C Reorganization
p.450
Liquidation
P Shares (500x)
T stock
T has assets (FMV=600x and B=
T S/Hs
$300x) and a $100x liability. P
acquires all T’s net assets in a in
P Shares (500x)
exchange for P voting stock worth
P
500x and P’s assumption of T’s 100x
Exchange
Target
liability. T distributes the P stock to T
T Assets (FMV=600 B= 300)
T Liability (100x)
shareholders in liquidation.
RESULT:
1. T Corporation recognizes no gain or loss on transfer of its assets.
§361(a). Transfer of liabilities does not alter this result. §357(a).
2. T recognizes no gain when it distributes the P voting stock to T
shareholders. §361(c).
3. P recognizes no gain on its stock under §1032 & takes a carryover
basis and tacked holding period in T assets. §362(b); §1223(2).
4. T shareholders get nonrecognition per §354(a), take substitute
66 basis per §358(a)(1), and a tacked holding period per §1223(1).
Problem 1(f)
C Reorganization
Liquidation
P Shares (500x)
T S/Hs
T stock
Same as (e) except P transfers 500x
of P voting stock and 100x cash to T.
T uses the cash to pay off its liability
and then distributes the stock to its
shareholders in complete liquidation.
p.450
Target
T Cash (100)
T Liability (100x)
P Shares (500x)
Cash (100)
Exchange
T Assets
(FMV=600 B= 300)
P
RESULT:
1. T Corporation recognizes no gain or loss on transfer of its assets.
§361(a). Although T received 100x of boot, it does not recognize
gain because the boot was distributed. §361(b)(3).
2. T recognizes no gain when it distributes the P voting stock to T
shareholders. §361(c).
3. P recognizes no gain on its stock under §1032 & takes a carryover
basis and tacked holding period in T assets. §362(b); §1223(2).
4. T shareholders get nonrecognition per §354(a), take substitute
67 basis per §358(a)(1), and a tacked holding period per §1223(1).
Problem 1(g)
C Reorganization
p.450
Liquidation
P Shares (500x)
T stock
Same as (e) except P transfers 500x P
T S/Hs
P Shares (500x)
voting stock and securities (FMV=100x
Securities (FMV=100 B=40)
B=40x). T sells the securities for 100x
using the proceeds to pay off its liability,
P
Exchange
Target
and then liquidates and distributes P
stock to T shareholders.
T Assets
Securities (100)
T Liability (100x) (FMV=600 B= 300)
RESULT:
1. T recognizes 100x of gain on securities as they were sold to pay
creditors and not directly transferred to them. §361(b)(1)(B).
2. T recognizes no gain when it distributes the P voting stock to T
shareholders. §361(c).
3. P recognizes no gain on its stock under §1032 but recognizes $60
of gain on transfer of appreciated securities (Rev. Rul. 72-327). P
takes T assets with basis of 400x.
4. T shareholders (no change).
68 Problem 1(h)
C Reorganization
p.450
Liquidation
P Shares (500x)
T stock
Same as (e) except P transfers 600x of P T S/Hs
voting stock and does not assume T’s
P Shares (600x)
liability. T sells 100x of P voting stock
and uses the proceeds to pay off the
P
Exchange
Target
liability. T then distributes the
remaining 500x of P stock to T
T Assets
P stock(100)
(FMV=600 B= 300)
shareholders in complete liquidation. T Liability (100x)
RESULT:
1. T recognizes no gain on transfer of assets to P. §361(a).
2. Read literally, T recognizes gain on sale of 1/6th of P stock (100 –
1/6th of 300 basis per §358(a)(1) since T did not transfer P stock to
creditors but sold the stock. See §361(c)(1) and (3).
3. P recognizes no gain on its stock under §1032. P takes T assets
with basis of 300x. §362(b); §381(a)(2).
4. T shareholders (no change).
69 Problem 1(i)
C Reorganization
Liquidation
P Shares (500x)
T S/Hs
T stock
Same as (h), above, except T
transfers $100,000 of P voting stock
directly to its creditor in payment of
the liability and then distributes the
remaining P stock to its shareholders
in complete liquidation.
p.450
Target
P stock(100)
T Liability (100x)
P Shares (600x)
Exchange
P
T Assets
(FMV=600 B= 300)
RESULT: Same as (h) except that T now clearly does not recognize
gain on transfer of 1/6th of P stock as this transfer of P stock to
creditors meets the exception of §361(c)(3).
70 Problem 2(a)
p.450
Forward Triangular Merger §368(a)(2)(D)
PS
tock
P creates S and transfers P stock. S-1
P
T S/Hs
merges into T in a valid § 368(a)(2)
(D) forward triangular merger.
Merger
S
T
What are the tax consequences to P,
T Assets
S, T and T’s shareholders?
(FMV=100 B= 100)
RESULT:
1. P recognizes no gain on creating S per §361 or §354(a)(1). P’s
basis in S is equal to T’s carryover asset basis. Reg. §1.358-6(c)(1)
2. S recognizes no gain on issuance of its S stock (§1032) and takes
zero basis in P stock (§362(b)). S recognizes no gain on transfer of
P stock. Reg. §1.1032-2(b) & (d). S takes carryover basis in T’s
assets and tacked holding period. §362(b) & §1223(2).
3. T has no gain or loss in merger (§361(a) and §361(c)) and T
shareholders recognize no gain on receipt of P stock (§358(a)(1)
and take substitute basis and tacked holding period
71 (§358(a)(1) and §1223(1)).
Problem 2(b)
Forward Triangular Merger
p.450
Reverse Triangular Merger
P creates S and transfers P stock. S-1
(§368(a)(2)(E)
merges into T in a valid § 368(a)(2)(E)
T S/Hs
reverse triangular merger. What are
P
T stock P
Stock
the tax consequences to P, S, T and T’s
P Stock
shareholders?
S
Merger
T
RESULT:
1. P recognizes no gain on creating S per §361 or §354(a)(1) and
nonrecognition on deemed liquidation of S per §332. P’s basis in
T stock equals its basis in S (zero) plus net basis in T assets under
Reg. §1.358-6(c)(1).
2. S has nonrecognition on issuance of its S stock (§1032) and takes
zero basis in P stock (§362(b)). S has nonrecognition under
§361(a) and (c) when it transfers P stock for T stock & liquidates.
3. T shareholders have nonrecognition under §354(a)(1) on their
exchange and 50x substite basis and tacked holding period 72 (§358(a)(1) and §1223(1)).
Problem 2(c)
Forward Triangular Merger
p.450
PS
tock
Failed §368(a)(2)(D).
P
T S/Hs
RESULTS
1. P: non-recognition on the formation of S
Merger
S
T
(per §351)
2. S: no gain on issuing its own stock
T Assets
(FMV=200 B= 100)
(§1032). S receives P stock with zero basis
per §362(a). S has STCG of 200x when it transfers P stock for T
stock. S takes cost basis in T assets.
3. T: recognizes 100x of gain on transfer of assets and takes §1012
cost basis of 200x in P stock.
4. T’s shareholders recognize 150x capital gain under §331 and they
hold the P stock with 200x FMV basis per §334.
73 Problem 2(d)
Reverse Triangular Merger
p.450
Failed §368(a)(2)(E).
T S/Hs
RESULTS
P
T stock P
Stock
1. P: non-recognition on the formation of S
P Stock
(per §351). P holds S stock with zero basis
S
Merger
T
per §358(a)(1). P has no gain on
liquidation of S per §332.
2. S receives P stock with zero basis per §362(a). S has STCG of
200x when it transfers P stock for T stock. S acquires T stock
with 200x cost basis per §1012. S has no gain on its liquidation
per §337.
3. T: recognizes no gain when it transfers T stock for P stock per
§1032.
4. T’s shareholders: recognize 150x capital gain under §1001 and
acquire 200x cost basis per §1012.
74 National Starch: The Dummy Structure
Rev. Rul. 84-71
P wants T. T Shareholder “A” (president of company) does not
want gain. Public T shareholders want cash. We know 14% COI is
not enough for a reorganization. How do we give everyone what
they want?
Step One: P and A contribute
property to S as part of larger
transaction
A
P
S Pfd
Stock
14% T
stock
S
100%
C.S.
86x
Cash
End Result: P acquires T
with 14% stock
Step Two: S forms D to merge into
T in a cash-only merger
A
T Public
86x
T stock Cash
T
Merger
A
P
S
D
14% T
stock
86x
Cash
Merger
P
S
T
Held: A has nonrecognition of gain under §351. The fact that A’s
transfer is part of a larger transaction that would fail §368 continuity
does not prevent A from being able to avail herself of §351.
75 Horizontal Double Dummy
T-1 wants to acquire T-2, but instead of acquiring T-2 directly, T-1 &
T-2 both are the subject of reverse subsidiary mergers and both
become subsidiaries of a New P. The public shareholders of both
companies are now shareholders of New P.
T-2 S/Hs
T-1 S/Hs
New
T stock P
Stock
T-1
P
P
Stock
Merger S-1
T stock
50% P stock
50% Cash
S-2 Merger
50% P stock
50% Cash
T-2
Held:
1. §368(a)(2)(E), §351, and §368(a)
(1)(B) all could apply as to T-1.
2. §351 applies as to T-2.
High Profile Deals Using Horizontal Double Dummy
1. Oracle Corp/Siebel Systems
2. Disney/ABC Capital Cities
76 3. Time Warner/Turner Broadcasting
Horizontal Double Dummy
(Charter Communications Failed Acquisition of Time Warner)
TW S/Hs
TW
Merger
CC
Question: Charter
Communications losing bid for
Time Warner would not be a taxfree reorganization. Why not?
New
CC
stoc
k
New
CC
Merger
S-1
New
CC
63% Cash
Stock
37% New CC
CC S/Hs
CC
stoc
k
Solution: Horizontal Double Dummy
TW S/Hs
S-2 Merger
TW
CC
S/Hs S/Hs
45%
TW
Analysis:
1. §368(a)(2)(E), §351, and §368(a)(1)(B) all could apply as to CC.
2. §351 applies as to TW.
55%
New
CC
77