Forward Triangular Merger

  

Categories: Banking, Entrepreneur

You are CEO of GloboTechnoCorproCon, a multinational conglomerate making everything from spy satellites to baby laxatives. You want to buy Slope Dancer, a startup that makes Google glass-like ski goggles. Your lawyers suggest the acquisition should be completed using a forward triangular merger.

This process involves buying Slope Dancer through a subsidiary and not buying it directly using the GloboTechnoCorproCon corporate entity. So you set up a shell company, Slope Purchase LLC, to make the transaction. Technically, Slope Purchase will buy Slope Dancer and become its parent company. Meanwhile, GloboTechnoCorproCon will be a the parent of Slope Purchase.

This indirect approach gives the bigger company some distance from the acquired company’s liabilities. Two years ago, some guy broke his leg after tripping over a mogol while skiing. At the time he fell, he was watching Game of Thrones on his Slope Dancer goggles. So...he sues Slope Dancer.

It will be hard for any judgment to touch GloboTechnoCorproCon because of the triangular merger. Meanwhile, the triangular merger setup can offer some tax benefits as well, depending on the situation.

Related or Semi-related Video

Finance: What's the difference between m...22 Views

00:00

Finance allah shmoop what's the difference between mergers and acquisitions

00:08

all right people listen up Merger that's what's about to

00:11

happen here it's a merger acquisition that's what's about to

00:16

happen here Corporate america is kind of same thing when

00:20

two companies merge while they generally you know attracted to

00:24

each other hopefully respect each other they share stock or

00:28

combined the stocks of each side and you know combine

00:32

efforts and then and then cuddle afterwards if they're successful

00:36

at the merger than the combination of two roughly equals

00:39

yields more than the one plus one combo that made

00:43

them so two companies get together on generally equal ish

00:46

footing In that case acquisitions are a combining more like

00:51

that eating thing on much different footing The large company

00:55

eats or buys the target either using its more highly

00:59

valued stock currency or it's taft to do so Well

01:02

why would a company acquire another Well the target might

01:05

have one hundred employees ninety of whom can be fired

01:08

with massive expense savings after the acquisition For the acquirer

01:12

such that economically the acquisition won't just makes a whole

01:15

lot of financial sense acquisitions happen for market power reasons

01:19

As well like imagine the negotiating leverage that amazon would

01:23

have if it bought the next five biggest online retailers

01:27

Or maybe it'll just kill them Probably not legal for

01:29

them to buy him anyway given the monopoly like dominance

01:32

of amazon these days But wow that would be a

01:34

powerful set of acquisitions And that would be a good

01:37

reason for ems on to acquire a whole bunch Things

01:39

and bezos would grow even more powerful maybe too powerful

Up Next

Finance: What are the economics of a good merger? (2.0)
2 Views

What are the economics of a good merger? The economics of a good merger need to show how profits and benefits will outweigh costs. A good merger wi...

Find other enlightening terms in Shmoop Finance Genius Bar(f)