Question

Maxco Inc. wishes to acquire Minnow Inc. The latter has 500,000 shares of common stock outstanding with voting rights and 100,000 shares of nonvoting preferred stock.

A. How many shares of each class of stock must Maxco acquire to qualify the acquisition as a Type B reorganization?

B. If Maxco uses its treasury stock to make the acquisition, does it matter how much Maxco paid for the shares?

C. If Maxco liquidates Minnow soon after the reorganization and acquires Minnow's assets, are the reorganization rules still met?

D. If Minnow purchased the stock of some minority shareholders for cash just before the reorganization, does Maxco's acquisition still qualify as a Type B reorganization?

E. If Maxco uses only its voting, convertible preferred stock, is the "solely for voting stock" requirement met?E. F. How can Maxco determine its basis in Minnow's stock if Minnow was publicly held?

Answer 1

A) To qualify for Type B acquisition:

Company needs to acquire minimum 80% of the total share capital i.e. Company needs to acquire atleast 4,00,000 shares of common stock and 80,000 share of non voting stock.

B) Atleast 80% of the acquired stocks should be by acquirer treasury stocks..So it does not matter how much is paid this condition is satisfied.

C) No if the maxcco liquidates the minnow after the reorganisation, reorganisation rule are not met.

D) Yes, it can buy the stock in cash for minority shareholder and it will still qualify as Type B reorganisation.