Intro to Mergers and Acquisitions Flashcards
What are the three alternative paths for transferring the business of one corporation to another?
- Transfer each asset by assignment or deed
- Assign target stock owned by shareholders
- Merge Target into Acquirer
What happens to the stock of Target’s shareholders during a merger?
It is converted to the consideration recited in the merger agreement
What occurs to Acquirer after the merger?
- Becomes the owner of all properties of Target
- Responsible for all of Target’s obligations
What happens to the corporate existence of Target after a merger?
It is extinguished
Does the order of events in a merger matter from a corporate law standpoint?
No, state law defines the rights and obligations of all parties
What is the significance of stock versus asset transfer in terms of income tax during a merger?
It makes little difference if the consideration is stock of Acquirer and qualifies as tax-deferred
What qualifies a merger as a tax-deferred corporate reorganization?
If a substantial part of the consideration is stock of Acquirer
How does the order of steps in a merger funded with cash affect taxation?
It determines whether a 35% corporate tax is imposed on Target
When will Target be taxed during a merger?
If the merger commences with the transfer by Target of its assets
When will Target not be taxed during a merger?
If the initial step is the transfer by Target’s shareholders of their stock
What is needed to resolve the conundrum of whether Target’s stock or assets are transferred first?
A fictional explanation of the merger must be adopted
What is the stock transfer fiction?
A fictional explanation that treats a merger as commencing with a transfer of Target’s stock
What is the asset transfer fiction?
A fictional explanation that treats a merger as commencing with a transfer of Target’s assets
What is the tax implication of the stock transfer fiction?
It does not cause Target to be taxed
What tax implication does the asset transfer fiction have?
It triggers a tax on the gain in Target’s assets
How long has the IRS embraced the asset transfer fiction?
For almost four decades
