Corp Y acquires all of the stock of Corp Z from the Z shareholders in exchange for consideration consisting of 50 percent voting stock of Y and 50 percent cash. Immediately after the stock acquisition, Y owns Corp Z as a wholly owned subsidiary and the former Z shareholders hold Y stock.
Z then files a certificate of dissolution under State W law and begins winding up its activities. Critically, under State W dissolution law ownership and title to Z’s assets does not automatically vest in Y upon dissolution. Instead, Z transfers some assets to its creditors in satisfaction of its liabilities and transfers its remaining assets to Y in the liquidation stage of the dissolution.
The stock acquisition and the dissolution are treated as steps in a single integrated acquisition by Y of the assets of Z. But because Y does not acquire all of the assets of Z as a result of Z filing the certificate of dissolution — and Z does not cease its separate legal existence simultaneously with the transfer — the acquisition does not satisfy paragraph (b)(1)(ii). Y instead acquires Z’s assets by reason of Z’s transfer of those assets to Y, so the transaction does not qualify as a statutory merger or consolidation under section 368(a)(1)(A).
The stock purchase (50% Y voting stock, 50% cash) and Z’s subsequent dissolution are treated as a single integrated acquisition by Y of Z’s assets.
Under State W dissolution law, title to Z’s assets does not vest in Y by operation of law; Z must affirmatively transfer its assets, which is fatal to (A) reorganization treatment.
Z first transfers some assets to creditors in satisfaction of liabilities (step a), then distributes its remaining assets up to Y in liquidation (step b).
Because Y does not acquire all of Z’s assets as a result of the dissolution and Z does not simultaneously cease to exist, the transaction fails section 368(a)(1)(A).
