Question

Humming Inc. is interested in acquiring BirdCo, a supplier of materials for Humming’s products, and feels that it could improve the management of BirdCo. Current management has been lax in monitoring product quality, which could lead to recalls or lawsuits. Management of BirdCo is not supportive of a merger because they could lose their positons, whereas most of the shareholders support the acquisition as a method of obtaining new management. There is a very small minority of shareholders who don’t want to be shareholders of Humming. BirdCo has assets of $5 million with a basis of $6 million. Its liabilities are $2 million. What would be the best solution for Humming in its acquisition of BirdCo?

A) Type A Reorganization

B) Type B Reorgainzation

C) Type C Reorganization

D) Humming buy Birdco's assets for cash and Birdco distribute the casg to its shareholders and liquidate

E) Humming buy Birdco's stock for cash directly from the shareholders

Answer 1

Answer:

Recommended solution would be:

A) Type A Reorganization

Type A reorganization is a statutory merger or acquisition. In merger is union of two or more companies get merged and only one of them maintains existent. Humming Inc.will acquire interest in BirdCo.and BirdCo. shareholders will receive consideration in exchage of their stock. Humming Inc will retain its name and reorganize management.

Option B and C are not recommended as "B" and "C" type reorganization require that the stock or property acquisition be in exchange "solely" for voting stock, they are more restrictive than the "A" type reorganization. There are minority shareholders in BirdCo. who don’t want to be shareholders of Humming.Inc.