Reverse Morris Trust

A reverse Morris trust is a transaction in which a company acquires another company by merging with a subsidiary of the target company. The target company's shareholders receive cash or stock in the acquiring company in exchange for their shares in the target company. The reverse Morris trust is named after the investment banker Robert Morris, who helped to develop the transaction structure.

The reverse Morris trust is often used when the acquiring company does not want to assume the target company's debt. The target company can create a subsidiary that holds all of its assets and liabilities. The acquiring company then merges with the subsidiary, and the target company's shareholders receive cash or stock in the acquiring company in exchange for their shares in the target company. The target company's debt remains with the target company's subsidiary.

The reverse Morris trust can also be used to avoid taxes. The target company can sell its assets to the acquiring company at a higher price than the target company's shareholders receive for their shares in the target company. The target company can then use the proceeds from the sale of its assets to pay off its debt. The target company's shareholders will not have to pay taxes on the gain from the sale of their shares in the target company, because the gain will be taxed at the corporate level.

The reverse Morris trust is a complex transaction that should only be undertaken with the advice of experienced legal and financial advisors.