A reverse triangular merger is a type of restructuring transaction used to merge with other company.  Instead of the regular plan to acquire or create a subsidiary, in a reverse triangular merger a parent company is acquired and used as a subsidiary.  Specifically, in such a transaction, the acquisition subsidiary is merged with a target company, but the acquiring company still remains intact.

A reverse triangular merger is quicker, simpler and is more effective than the regular triangular merger mainly because the new subsidiary that merges with the target company has only one controlling shareholder – the acquiring company. There are also other benefits of structuring a merger as a reverse triangular restructuring.  For example, one major benefit is contract continuity.  If the target company has been in existence for many years, the acquiring company might wish to keep the target’s proposals. A reverse triangular merger ensures that the acquiring company will be able to enforce those contracts later on.  Another benefit of the reverse triangular merger is its faster execution.  In a regular forward triangular merger, the acquiring company needs to gain approval of the majority of all of its existing shareholders. In a reverse triangular merger, however, that requirement is automatically satisfied by the fact that the newly acquired target will have only one shareholder – the acquiring company. Moreover, in a reverse triangular merger, there are fewer risks associated with the purchase. Specifically, the target company is not directly merged into the acquiring company.  The acquiring company is cushioned against the target’s liabilities due to the fact that they remain separate companies.  Finally, since the target company remains a separate entity, the acquiring company can freely choose to sell the newly created subsidiary if the merger proves to be less financially favorable. This presentation will examin the reverse triangular mergers which were the most common merger structures among publicly traded corporations in 2008.