Question

Target merges into Parent under state law. The FMV of the Target’s stock is $1,000. Target’s shareholders receive pro rata $1,000 FMV of Parent’s nonvoting, nonparticipating, nonconvertible 8% cumulative preferred stock. Does this qualify as a Type A reorganization? Why or why not?

Answer 1

Type A reorganization is the most flexible way of reorganization. In case of Type A reorganization, the buyer can use either voting stock, non voting stock, participating or non participating stock or convertible or nonconvertible stock for acquisition of target corporations assets. It can also use cash for acquiring the assets i.e it can use mix of stocks and assets.

Hence, considering the above statement, the given case will qualify for Type A reorganization.