Tax benefits for Citrix shareholders
Earlier in the series, we discussed the details of the merger of Citrix Systems’ (CTXS) GoToMeeting with LogMeIn. This agreement is filed as a “Reverse Morris Trust” transaction. In this type of transaction, the parent company completes a spin-off of a subsidiary and then merges it with a target company to create a merged new entity. The transaction is tax-free if the subsidiary is the buyer of the target company and owns more than 50% of the merged company.
The LogMeIn-GoToMeeting merger is expected to close in 1Q17, subject to regulatory and LogMeIn shareholder approval. On deal completion, Citrix shareholders will get ~27.6 million shares, which is approximately 50.1% of the stock of the combined company, as the above presentation shows. Therefore, the LogMeIn and GoToMeeting deal would be a tax-free deal to US Citrix shareholders.
Recent Reverse Morris Trust deals
In May 2016, Hewlett Packard Enterprise (HPE) struck a Reverse Morris Trust agreement and announced that it is planning a tax-free spin-off and merger of its Enterprise Services business with CSC (CSC). In January 2016, Lockheed Martin (LMT) announced its plan to shed its Information Systems and Global Solutions segment and merge it with Virginia-based Leidos Holdings (SAI) in a $5 billion Reverse Morris Trust transaction.
A spin-off offers an opportunity to the parent company to raise capital, monetize its interest in the segment being spun off, and thereby reduce debt. Companies resort to Reverse Morris Trust deals as it offers the combined benefits of mergers and spin-offs.