Observations from the front lines

December 2013
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Observations from the front lines

At a glance

The re-emergence of a Mergers & Acquisitions (“M&A”) technique known as a “Reverse Morris Trust” (“RMT”) has proven to provide some unique advantages over other strategic alternatives as a vehicle for divesting divisions or a separate business. Companies considering a divestiture should become knowledgeable on the recent comeback of this strategic alternative so they can actively engage in conversations with their advisors.

Observations from the front lines provides PwC's insight on current economic issues, our perspective regarding the business impacts, and actions we have seen companies taking to effectively address those issues.

Strategic Divestiture Alternatives – An efficient structure re-emerges

A RMT is a tax-free divestiture technique, which also allows the seller to partially monetize its interest in the soon to be divested business. A typical RMT transaction involves a third party acquiring entity merging with and into a spun-off subsidiary immediately after the spin-off.

Unlike a sale of stock or assets, an attractive feature of a RMT is the ability for the distributing company to partially monetize its interest in the distributed subsidiary in a tax-efficient manner, similar to a tax free spin-off. The benefit of the RMT as compared to another method of sale is that the monetization and subsequent divestiture of the subsidiary may be tax-free if certain RTM requirements are met.

Highlights in this issue:

  • Imperative to understand and evaluate the various strategic alternatives
  • Re-emergence of an M&A technique known as a “Reverse Morris Trust” (“RMT”)
  • A RMT transaction generally involves a third party acquisition corporation merging with and into a spun-off subsidiary immediately after the spin-off
  • Important to understand restrictions that structures, such as RMTs, place on the buyer and the continuing business

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