Forward Triangular Merger ("A" Reorganization)
In a forward triangular merger, the target is merged into a subsidiary of the acquiring corporation, leaving the subsidiary as the surviving entity. Because the target is eliminated, non-transferrable assets and contracts, such as patents or licenses, may be lost. The buyer must acquire "substantially all" of the target’s assets (defined as at least 70% and 90% of the FV of the target’s gross assets and net assets, respectively) for the transaction to qualify for tax-free treatment. Sales of assets not wanted by the acquirer just prior to the merger may jeopardize favorable tax treatment.
As in a statutory merger, the form of consideration must meet the continuity of interest requirement and payment in acquirer stock is flexible as to the type of securities used as consideration (payment in subsidiary stock is disallowed). However, this structure has two advantages over a statutory merger: 1) the acquirer is shielded from the target’s liabilities because they are isolated in a separate legal entity (the subsidiary) and 2) the acquirer’s shareholders need not approve the merger, unless the acquisition is material or more acquirer shares must be authorized to complete the transaction.
Bullish
