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.
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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.
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