Forward Triangular Merger


DEFINITION of 'Forward Triangular Merger'

The acquisition of a target company by a subsidiary of the purchasing company. The only difference between a forward triangular merger and a direct merger is that a subsidiary of the purchasing company, not the purchasing company itself, is the entity that acquires the target. Forward triangular mergers, like direct mergers and reverse triangular mergers, can be either taxable or nontaxable, depending on how they are executed and other complex factors.

BREAKING DOWN 'Forward Triangular Merger'

In a taxable forward triangular merger, the subsidiary buys 100% of the target's shares and the target's shareholders receive cash in exchange. In a nontaxable forward triangular merger, also known as a tax-free reorganization, the target's shareholders are compensated at least 50% in shares of the acquiring company. This gives the target's shareholders a continuing interest in the post-merger company and satisfies one of the key criteria for a tax-free reorganization.

  1. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. Congeneric Merger

    A type of merger where two companies are in the same or related ...
  3. Merger

    The combining of two or more companies, generally by offering ...
  4. Target Firm

    A company which is the subject of a merger or acquisition attempt. ...
  5. Merger Of Equals

    The combination of two firms of about the same size to form a ...
  6. Reverse Triangular Merger

    The formation of a new company that occurs when an acquiring ...
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