Triangular Mergers: Different Approaches, Same Goal

Posted: November 4, 2015 | News

In a triangular merger, the target company merges with a shell company wholly owned by the buyer.   As a result, the target becomes a subsidiary of the acquirer.   There are two basic types of triangular mergers.   In the “forward triangular merger”, the target merges into an existing subsidiary of the buyer.   In a “reverse triangular merger” a subsidiary of the buyer is created, and then merged into the target company.   Under U.S. tax law, the forward triangular merger is treated as though the target sold all its assets to the shell company, then liquidated.   In the reverse triangular merger, the merger is taxed as though the seller’s shareholders sold all their shares in the target company to the buyer.   Buyers generally prefer asset sales, so for them the forward triangular merger may be the better choice, whereas the reverse triangular merger usually appeals more to sellers.

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