Integrated Acquisitive Reorganizations

In this article, P is the purchasing or acquiring corporation, T is the target or acquired corporation, and S is a wholly owned P corporate subsidiary. In Rev. Rul. 2001-26,1 the IRS (building on case law2) stepped together (1) P’s acquisition of 51 percent of T’s stock by tender offer in exchange solely for P voting stock and (2) P’s preplanned acquisition of the remaining 49 percent of T’s stock, by an S-into-T squeeze-out merger, in exchange for two-thirds P voting stock and one-third cash (so that more than 80 percent of all the consideration to T’s shareholders was P voting stock and less than 20 percent was cash). The IRS held that the integrated acquisitive transaction satisfied section 368(a)(2)(E)’s reverse subsidiary merger 80-percentcontrol-for-voting-stock requirement. Constrained to its particular facts, the ruling is welcome but unremarkable. Concentrating on its analysis and the authority on which it relies, however, Rev. Rul. 2001-26 promises — although standing alone does not in all respects deliver — extensive transactional efficiency. Rev. Rul. 2001-26, we think it clear, confirms that the IRS will apply step transaction principles to find a section 368(a) reorganization where (1) there is a factual basis to integrate (e.g., the first-step tender and Table of