Double Reverse Morris Trust

Transaction Overview

  • The double reverse Morris Trust structure is relevant for several scenarios:
    • Two public companies with divisions, which have good strategic fit, but for which a sale from one to another would be tax inefficient or otherwise untenable
    • Two public companies in a 50:50 joint venture seeking a tax-efficient exit for both parties and a fully distributed public market valuation
    • A public company with a non-core subsidiary which does not have the scale to be a separate public company but when combined with a division of another company in the industry would be more formidable

Transaction Steps Final Structure
transaction steps final structure
Advantages Disadvantages
  • Expands universe of potential Morris Trust partners
  • Spun entity gains size and scale through combination
  • Significant monetization possible through debt/debt swaps
  • Shareholders get benefits of synergies of merger
  • Shareholders get benefits of a viable public company with significant size and scale
  • Can execute as a split-off to ameliorate any issues created by size of subsidiary spun off relative to seller
  • Shareholder overlap between two entities must exist at closing to ensure tax-free treatment
  • Monetization restricted by market capacity and Section 355 limitations
  • Need to equalize values of subsidiaries contributed to NewCo