Presentation: Corporate Taxation Chapter Nine: … 9.pdfCorporate Taxation Chapter Nine: Acquisitive Reorganizations ... Chapter 9 Acquisitive ... Is this Rev. Proc. “substantive

Corporate Taxation Chapter Nine: Acquisitive Reorganizations Professors Wells

Presentation:

March 20, 2017

2

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.

Chapter 9 Acquisitive Corporate Reorganizations p. 393

3

Acquisitive Reorganizations p.395

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 (§368(a)(1)(A))

2)   “B” reorganization – stock/stock exchange (§368(a)(1)(B))

3)   “C” stock for assets exchange (§368(a)(1)(C)), and 4)   Certain “triangular” variants (e.g., using an acquisition

subsidiary of Acquirer) (§368(a)(2)(D) & §368(a)(2)(E)).

4

Concepts of Tax-Free Corporate Reorganizations p.396

1)   Continuity of Shareholder Interest: a 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)   Continuity of Business Enterprise Requirement. the transferor’s properties must be acquired, i.e., the operating “business” must be acquired and those assets and/or the historic business must be continued.

3)   A business purpose (i.e., non-tax objective) for the transaction must exist.

Note: A “step” or “integrated” transaction rule or an “old and cold” rule also often applies.

5

Tax Code Provisions Re Tax-Free Reorgs. p.396

§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.397

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.403) 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.398

§368(a)(1)(A) For purposes of parts I and II and this part, the term “reorganization” means— (A) a statutory merger or consolidation;

1)   Merger: Shareholders of the target corporation receive shares of the acquiring corporation as a result of a “statutory merger” of target into purchaser under local law (including foreign law) merger statute.

Target

T Shareholders Stock

Merger Acquirer

Target

T1 Shareholders Stock

Merger Acquirer

Target

T2 Shareholders

Merger

Stock

2)   Consolidation: Mergers of two existing corporations into a third (often new) corporation.

Target Assets and Liabilities

(by law)


(by law)


(by law)

8

Divisive Mergers (i.e., Not “Acquisitive”) p.399

Rev. Rul. 2000-5 – For a merger to qualify as a tax-free corporate reorganization under Section 368(a)(1)(A), the merger must be acquisitive, rather than divisive (note: divisive transactions may qualify for tax-free reorganization treatment under Section 368(a)(1)(D) and in any event 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.399

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.400 Southwest Natural Gas Co. v. Commissioner

Merger of Peoples Gas into Southwest Natural Gas. Southwest Natural Gas paid cash, bonds, and stock.

Peoples

Gas

T Shareholders

Cash ($230,700) Bonds ($340,350) Stock (FMV=$5,592.50)

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.402 50% of Consideration as Stock

X merged under state law into Y Corporation. Shareholders A & B received cash for their respective 25% interests; Shareholders C & D received stock for their respective 25% interests.

X

A

Cash

($50,000)

Merger Y

B C D 25% 25% 25% 25%

Stock ($50,000)

Stock ($50,000)

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.403

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.404

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.406

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). Pre-deal trading not negating the tax-free status.

Conoco

Public

Cash

Seagram

Dupont

32% Stock

Cash

46% Stock

Conoco

Public Seagram

Dupont

22%

Dupont Tenderor Merger

32%

Dupont

Stock

Step One: Dupont and Seagram acquire Conoco stock for cash

Step Two: Dupont acquires remaining 54% of Conoco stock (including Seagram’s stock) for Dupont stock

15

Continuity by Historic Target Shareholder Kass v. Commissioner n.75 p.411

Squeeze-out upstream merger. Track acquired 84% of ACRA with cash, 10.23% were transferred to TRACK upon its formation, and 5.82% transferred as part of squeeze-out merger. This enabled acquisition of the entire business.

TRACK

ACRA

Kass

84% 16%

Merger

TRACK

Stock

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.407

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 p.409 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.

No understanding that the P share ownership by the T shareholders would be transitory.

T

T S/Hs

P

Step One: T Merges into P with shareholders getting 50% T stock and 50% cash

Merger

T stock

PUBLIC

P

Step Two: P redeems P stock in an amount equal to amount issued in Step One

Held: No impact on the COI status. The post-reorganization stock redemption is okay if not prearranged with T shareholders and was

done as open market transactions.

19

Continuity of Business Enterprise (COBE) Bentsen v. Phinney p.411

Held: COBE requirement was satisfied – need not engage in the same business – only some business activity.

Facts: Rio Development merges along with 2 other land development companies into a new life insurance company. The life insurance company disposes of the historic business assets and reinvest the proceeds into a life 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).

Rio Dev. Corp.

T S/Hs

Life Ins. Co. Merger

T stock

20

Rev. Rul. 81-25 p.415 Transferor Business Important

COBE requirement – per IRS:

Look to the historic business assets of the transferor corporation (not the transferee corporation) to determine 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

controlled partnership.

T

T S/Hs

P Merger

T stock

21

The “B” Reorganization – “Solely” Stock-for-Stock Exchange p.416

Stock for stock exchange (completed at the Target shareholder level):

Step 1: A stock exchange occurs between the Target shareholders and the Purchaser Corporation (for P or P’s Parent Shares).

Step 2: The acquired Target Corporation becomes a subsidiary of the Purchaser as a result of the stock acquisition transaction.

T S/Hs

T stock

Target

A

Target

A stock or A’s Parent Stock

Stock-for-Stock Exchange

T S/Hs

T stock

Target

A

Target

P stock (A’s Parent)

P

P stock

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. No substantially all requirement allows T to dispose of unwanted assets.

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Chapman Case (note 83) p.416 ITT/Hartford “No Boot in a B”

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

Target

Acquiring

Target S/H

Acquiring Shares plus any boot

Target Assets

Acquiring or Acquiring Parent’s

Shares

Exchange Liquidation

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.

25

The “C” Reorganization – The “Practical Merger” p.420

Criteria for a valid “C” reorganization: 1)   Voting stock of the acquirer or acquirer’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 fmv of gross 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. See §368(a)(2)(G).

4)   Assumption of liabilities is permitted (but see Boot Relaxation Rule). 5)   Boot Relaxation Rule of §368(a)(2)(B): 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.420

§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 p.422 “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.

X S/Hs

X stock

X

Y

Y stock

Stock-for-Stock Exchange followed by X liquidation.

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 p.423

T

T S/Hs

P

“A” Reorg followed by drop down. §368(a)(2)(C)

Merger

T stock

A

Forward Triangular Merger (§368(a)(2)(D)

Reverse Triangular Merger (§368(a)(2)(E)

T

T S/Hs P

Exchange A

P Stock

T

T S/Hs

P

T stock

A

P Stock

Parenthetical “C” §368(a)(1)(C)

Parenthetical “B” §368(a)(1)(B)

T

Exchange

T

T S/Hs

S Merger

P Stock P

P Stock

T

P

Merger S

T S/Hs

T stock

P Stock

P Stock

30

Type A Reorganization: §368(a)(2)(D) Forward Triangular Merger

1.  Advantages over type A type: Parent has flexibility regarding assumption of liabilities

2.  Disadvantages: “substantially all” requirement limits ability to dispose of unwanted assets.

3.  Qualifies as type A if 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.

Forward Triangular Merger (§368(a)(2)(D)

T

T S/Hs

A Merger

P Stock P

P Stock

31

Type A Reorganization: §368(a)(2)(E) Reverse Triangular Merger


Similar to Type B in result, despite Type A statutory classification. Requirements: 1.  Use of first-tier Subsidiary 2.  Use of Acquiring Parent’s voting stock 3.  Acquiring Parent must acquire stock

representing 80% control of Target in the actual reorganization exchange. Thus, unlike a B reorganization, 80% control must be acquired as new exchange.

T

P

Merger S

T S/Hs

T stock

P Stock

P Stock

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 p.427

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%


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)).

T

P

Merger X

T S/Hs

T stock

P Stock

P Stock

34

Multi-Step Transactions Rev. Rul. 2008-25 p.429

1)   P forms X (MergerSub) to merge into T. T shareholders receive 10x cash and 90x P voting stock.

2)   T then liquidates into P (not a merger) and then P conducts

the T business.

Liquidate

P

T

Analysis If separate transactions, then §368(a)(2)(E) would apply. But, these steps are integrated per step transaction doctrine principles.

Holding 1.  Not an A2E because T does not

remain in existence. 2.  Not a “C” because

“substantially all” T assets not acquired “solely” for P voting stock (even considering boot relaxation rule).

3.  Not an “A” because T did not merge into P.

4.  So, taxable according to form since a taxable stock purchase without a §338 election.

T

P

Merger X

T S/Hs

T stock

P Stock

P Stock

35

Use of Disregarded Entities AT&T / Direct TV Merger 5/18/2014 p.429

1)   AT&T forms X (Disregarded Entity). DirectTV merges into X. T shareholders receive 30% cash and 70% AT&T stock ($49 billion)

2)   Question: Why was transaction not done as a follows?

Analysis What is this?

Holding 1.  Straight “A” because T

merged away and is viewed as merging into AT&T (as X is disregarded.

2.  Note that if X had been a regarded C corporation then this would have been tested under §368(a)(2)(D) which requires substantially all assets to be retained whereas straight Section 368(a)(1)(A) reorganization does not.

T

P

Merger X

T S/Hs

P Stock

P Stock

T

P

Merger X

T S/Hs

T stock

P Stock

P Stock

36

Problem 1(a) p.437 Nonvoting Preferred Received

FACTS: Each Target shareholders receive nonvoting preferred with value of $300,000 per share and $100,000 P-Note. RESULT: Good §368(a)(1)(A) reorganization.

T

T S/Hs

$300,00 Nonvoting Pfd $100,000 P-Note

P Merger

T stock

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) p.437 Sufficiency of 40% for COI

FACTS: Same as (a) except four T shareholders (holding 40% of T stock) receive $400,000 of P voting common stock while the other six T shareholders (representing 60%) receive $400,000 in cash.

T

T S/Hs

$400,00 P voting c.s. $400,000 cash

P Merger

T stock

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

FACTS: Same as (b) except the value of P stock declines between time of execution of agreement and closing with the result that the four T shareholders holding 40% of T stock receive only $250,000 of P voting common stock.

T

T S/Hs

P Merger

T 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).

$250,00 P voting c.s. $400,000 cash

39

Problem 1(d) p.437 Continuity of T Shareholders Post-Merger

T merges directly into P, and each T shareholder receives $400,000 of P voting common stock. Pursuant to a binding commitment entered into prior to the merger, six of the former T shareholders (who held 60% of the T stock) sell their new P

T

T S/Hs

P Merger

T stock

$400,00 P voting c.s. Unrelated

60% P voting c.s.

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) p.437 Continuity of Business Enterprise

Same as (a), above, except shortly after the merger and as part of its original plan, P sells T’s assets to an unrelated party at a nice profit and uses the sales proceeds to expand its professional textbook business.

T

T S/Hs

$300,00 Nonvoting Pfd $100,000 P-Note

P Merger

T stock

X T assets

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.

T S/Hs

T stock

Target

P

Target

$360,000 P stock +

$40,000


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) p.437 Creeping B Reorganization

P purchases 400 shares of T stock from Dee Minimis for $400,000 cash. Three months later, P transfers $400,000 of P voting preferred stock to each of the nine remaining T shareholders in exchange for their respective 400 shares of T stock. RESULT: Failed because Dee purchase is not old and cold. See Treas. Reg. §1.368-2(c).

Dee

400 T stock

Target

P

Target

$400,000 cash

Cash Purchase of 400 T Stock

T S/H

Target

P


T S/H 400 T stock

$400,000 P stock

43

Problem 1(h) p.437 Boot Relaxation Rule

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 P-Notes. Immediately thereafter, T completely liquidates, distributing the P shares and P-Notes to T shareholders. P drops down the T assets to S.

P Shares ($3.6 million) P-Note ($400k)

Exchange

Target Assets ($5 million) T Liability ($1 million)

Target

P

T S/Hs

P S

hare

s ($

3.6

mill

ion)

P

-Not

e ($

400k

)

Liqu

idat

ion

T stock

S

T A

ssets

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) p.438 “Substantially All” Requirement

Same as (h), above, except that T retains $400,000 of its cash, P acquires the balance of T’s assets, and assumes the liability, for $3.6 million of P voting common stock, and T distributes the P shares and cash pro rata to its shareholders in complete liquidation.

P Shares ($3.6 million)

Exchange

Target Assets ($4.6 million) T Liability ($1 million)

Target

P

T S/Hs

P S

hare

s ($

3.6

mill

ion

T C

ash

($40

0k)

Liqu

idat

ion

T stock

S

T A

ssets

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 of $4 million) and all T's operating assets were transferred.

45

Problem 2(a) p.438 Multi-Step Acquisitions: A(2)(E) or A Reorg?

P acquires all the T stock in a reverse triangular merger in which Y–1, a transitory subsidiary of P, merges into T. In the merger, four T shareholders (holding 40% of the T stock) each receive $400,000 cash and the other six T shareholders each receive $400,000 of P nonvoting preferred stock. T then merges upstream into P. RESULT: Viewed in isolation, T is acquired for too much cash for an (A)(2)(E). But, in 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 statutory merger of T into P and thus qualified as a Type A reorganization.

Step One

P

T

Merger

Step Two

60% Nonvoting Stock 40% cash

T

P

Merger Y-1

T S/Hs

T stock

Cash & Stock

Stock & Cash

46

AT&T’s Acquires Time Warner ($85.4 Billion) (10/22/2016)

(See Rev. Rul. 2001-46) p.431

1)   P forms X (MergerSub) & merges into Time Warner (T). T shareholders receive 30x cash and 70x P voting stock.

2)   T then merges into P or into a disregarded entity owned by P and then P conducts the T business.

Upstream Merger

P

T

Analysis 1.  Viewed individually, this

transaction cannot qualify for §368(a)(2)(E) because control of T is not acquired with AT&T voting stock.

2.  But, the two steps are integrated under the step transaction doctrine causing the transaction to be viewed as a straight “A” reorganization because the end result is that T merged into P (or a disregarded entity owned by P).

T

ATT

Merger X

T S/Hs

T stock 50% P Stock 50% Cash

X Merge

50% P Stock 50% Cash

47

Problem 2(b) p.438 Step Transaction?

Same as (a), above, except the second step in the transaction is a merger of T into Y–2, a subsidiary of P. 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.

Step One

P

T Merger

Y-2

Step Two


T

P

Merger Y-1

T S/Hs

T stock

Cash & Stock

Stock & Cash

48

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.

TEG Merger

MS#1

T Public

T stock WES 26% Cash

+ 76% Stock

Merger

Step One: MS#1 merges into TEG with T’s shareholders receiving 24% cash and 76% as WES stock.

Step Two: TEG merges into S as part of binding commitment.

End Result: P acquires T with 14% stock

S TEG Merger

WES

S

TEG Business

WES

S

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?

Question #3: What is the right characterization?

49

Consider: Heinz Acquisition of Kraft 4/14/2015)

H.J. Heinz Holding Company (HJH) will acquire Kraft Foods. HJH forms MS#1 (a C corp) and MS#2 (a disregarded entity). MS#1 is merged into Kraft. Kraft then merges into MS2. The S-4 states that Kraft, prior to the Step One merger, will pay a special dividend of $16.50 to its shareholders ($10 billion in aggregate) and that "the payment of the Special Dividend will be contingent on the consummation of the Merger and the Subsequent Merger” and that “the special cash dividend of $10 billion in the aggregate to existing K shareholders . . . will be funded by an equity investment by Berkshire Hathaway and 3G Capital (shareholders of HJH).”

Kraft Merger

MS#1

K Public HJH $10 Billion

Dividend

Merger

Step One: Kraft declares special dividend and then MS#1 merges into Kraft.

Step Two: Kraft merges into MS#2 (a disregarded entity) as part of binding commitment.

End Result: HJH owns Kraft business through disregarded entity

S Kraft Merger

HJH

MS2

Kraft Business

HJH

Question #1: How is this reorganization to be characterized? Question #2: What is the tax treatment of the special dividend?

MS2

49% HJH Stock (FMV= ~$40 billion)

50

Problem 2(c) p.438 Multiple Acquisitions

Same as (a), 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. 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.

Step One 60% Nonvoting Stock 40% cash

Liquidate

P

T

Step Two

T

P

Merger Y-1

T S/Hs

T stock

Cash & Stock

Stock & Cash

51

Problem 2(d) p.438 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).

RESULT: Treas. Reg. §1.338(h)(1)-1(c)(2) 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 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

§337. See Reg. § 1.338(h)(10)-1(e) Examples 11 and 12.

T

P

Merger Y-1

T stock


S

P

T

Merger

Step Two

Step One

52

Problem 3 p.438 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.

T S/Hs

T stock

Target

P

Target

1.  5 Years Ago: 10% cash 2.  1 Year Ago: 50% cash 3.  Now: 40% for P voting or

nonvoting stock

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

53

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.

54

Acquisitive Reorganization Treatment of the Parties

Target Shareholders •  Shareholders exchange of stock-for-

stock 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 sections 301/302 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 Acquirer.

55

Commissioner v. Clark p. 440 (n.134) 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

T S/Hs P

Merger

T stock

A

T Shareholders “Deemed to Only Receive P Stock “First”

P Stock

P

T S/Hs Historic P S/Hs

T Shareholders “Deemed to Only Receive P Stock “First”

Hypo P Stock

Cash

56

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.

57

Basis and Holding Period for Target Shareholders p.443

§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).

58

Target Corporation p.445 Consequences - Issues

§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.

59

Shareholder Distribution Tax Effects to the Target p.446

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)?

60

Acquiring Corporation p.447 Asset Reorganization Consequences

§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.

61

§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.

Acquiring Corporation p.447 Stock Reorganization Consequences

62

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

63

Problem 1(a) p.450 “A” Reorganization

T merges into P in a qualified Type A reorganization. Each T shareholder receives 4,000 shares of P voting common stock (FMV=$40,000) and P nonvoting preferred stock (not ‘‘nonqualified preferred stock’’) (FMV=$10,000). What if the P nonvoting preferred were nonqualified preferred stock?

400x P voting 100x P Nonvoting Pfd

T

10 T S/Hs

P Merger

T stock (B=20 FMV=50)

Acc. E&P (500) T Assets (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

basis in T assets and a tacked holding period. §362(b); §1223(2).

64

Problem 1(b) p.450 Securities in Exchange

(b) Same as (a), above, but instead of the preferred stock each T shareholder receives 20–year market rate interest bearing B notes with a principal amount and fair market value of $10,000 ($100,000 total). RESULT: Same except as follows-- 1.  Securities are boot causing T

400x P voting 100x Securities

T

10 T S/Hs

P Merger



Acc. E&P (100)

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).

65

Problem 1(c) p.450 Securities as “Boot”

Same as (b), above, except that two of the shareholders receive all the notes (with a principal amount and fair market value of $100,000), and the remaining eight shareholders each receives P voting common stock worth $50,000 ($400,000 total). RESULT: Same except as follows--


T

10 T S/Hs

P Merger



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).

66

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. Result: The question is interesting if there were a T shareholder who would have the boot taxed as a


T

10 T S/Hs

P Merger



Acc. E&P (100)

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.

67

Problem 1(e) p.451 Basic C Reorganization

T has assets (FMV=600x and B=$300x) and a $100x liability. P acquires all T’s net assets in a in exchange for P voting stock worth 500x and P’s assumption of T’s 100x liability. T distributes the P stock to T shareholders in liquidation.

P Shares (500x)

Exchange

T Assets (FMV=600 B= 300) T Liability (100x)

Target

P

T S/Hs

P S

hare

s (5

00x)

Liqu

idat

ion

T stock

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

basis per §358(a)(1), and a tacked holding period per §1223(1).

68

Problem 1(f) p.451 C Reorganization

P Shares (500x) Cash (100)

Exchange

T Assets (FMV=600 B= 300)

Target

P

T S/Hs

P S

hare

s (5

00x)

Liqu

idat

ion

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.

T Cash (100) T Liability (100x) 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 basis per §358(a)(1), and a tacked holding period per §1223(1).

69

Problem 1(g) p.451 C Reorganization

Same as (e) except P transfers 500x P voting stock and securities (FMV=100x B=40x). T sells the securities for 100x using the proceeds to pay off its liability, and then liquidates and distributes P stock to T shareholders.

P Shares (500x) Securities (FMV=100 B=40)

Exchange


Target

P

T S/Hs

P S

hare

s (5

00x)

Liqu

idat

ion

T stock

Securities (100) T Liability (100x) 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).

70

Problem 1(h) p.451 C Reorganization

Same as (e) except P transfers 600x of P voting stock and does not assume T’s liability. T sells 100x of P voting stock and uses the proceeds to pay off the liability. T then distributes the remaining 500x of P stock to T shareholders in complete liquidation.

P Shares (600x)

Exchange


Target

P

T S/Hs

P S

hare

s (5

00x)

Liqu

idat

ion

T stock

P stock(100) 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).

71

Problem 1(i) p.451 C Reorganization

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 Shares (600x)

Exchange


Target

P

T S/Hs

P S

hare

s (5

00x)

Liqu

idat

ion

T stock

P stock(100) T Liability (100x)

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).

72

Problem 2(a) p.450 Forward Triangular Merger §368(a)(2)(D)

P creates S and transfers P stock. S-1 merges into T in a valid § 368(a)(2)(D) forward triangular merger. What are the tax consequences to P, S, T and T’s shareholders?

T

T S/Hs

S Merger

P Stock P


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 (§358(a)(1) and §1223(1)).

73

Problem 2(b) p.450 Forward Triangular Merger

P creates S and transfers P stock. S-1 merges into T in a valid § 368(a)(2)(E) reverse triangular merger. What are the tax consequences to P, S, T and T’s shareholders?


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 (§358(a)(1) and §1223(1)).

T

P

Merger S

T S/Hs

T stock

P Stock

P Stock

74

Problem 2(c) p.450 Forward Triangular Merger

Failed §368(a)(2)(D). RESULTS 1.  P: non-recognition on the formation of S

(per §351) 2.  S: no gain on issuing its own stock

(§1032). S receives P stock with zero basis

T

T S/Hs

S Merger

P Stock P


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.

75

Problem 2(d) p.450 Reverse Triangular Merger

Failed §368(a)(2)(E). RESULTS 1.  P: non-recognition on the formation of S

(per §351). P holds S stock with zero basis 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.

T

P

Merger S

T S/Hs

T stock

P Stock

P Stock

76

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?

P A

86x Cash

S 14% T stock

T Merger

D

T Public

T stock

P A

86x Cash

S 14% T

stock 86x Cash

Merger

P A

S

T

Step One: P and A contribute property to S as part of larger transaction

Step Two: S forms D to merge into T in a cash-only merger

End Result: P acquires T with 14% stock

S Pfd Stock 100%

C.S.

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.

77

Horizontal Double Dummy

High Profile Deals Using Horizontal Double Dummy 1.  Oracle Corp/Siebel Systems 2.  Disney/ABC Capital Cities 3.  Time Warner/Turner Broadcasting

T-1

New P

Merger S-1

T-1 S/Hs

T stock P

Stock

P Stock

S-2

T-2

T stock

T-2 S/Hs

Merger

50% P stock 50% Cash

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.

50% P stock 50% Cash

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.

78

Horizontal Double Dummy (Charter Communications Failed Acquisition of Time Warner)

TW

CC Merger

TW S/Hs Question: Charter Communications losing bid for Time Warner would not be a tax-free reorganization. Why not?

Solution: Horizontal Double Dummy

CC

New CC

Merger S-1

CC S/Hs

S-2

TW

TW S/Hs

Merger

New

CC

sto

ck

63% C

ash 37%

New

CC

Stock N

ew C

C s

tock

Analysis: 1.  §368(a)(2)(E), §351, and §368(a)(1)(B) all could apply as to CC. 2.  §351 applies as to TW.

New CC

CC S/Hs

TW S/Hs

45% 55%

Documents

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