A reverse triangular merger is a merger of a wholly owned subsidiary of the acquiring corporation (typically created solely for the transaction) into the target corporation. A reverse triangular merger is sometimes called a “reverse subsidiary” merger. A “reverse” merger implies the smaller corporation acquires the larger corporation.
The shares of the acquiring corporation’s subsidiary are converted into shares of the target corporation. This results in the target becoming a wholly owned subsidiary of the acquiring corporation. The shareholders of the acquiring corporation continue to own their shares in the acquiring corporation. The shareholders of the target (acquired) corporation receive payment and are entitled to appraisal rights.
Following the merger, the target is the same business except that its shares are now owned by the acquiring corporation. That is, in a reverse triangular merger, the business of the target company continues to be operated in the same corporate form. However, its former shareholders now own stock in its parent.
Example: Schwartz, Inc. is a subsidiary. Patrice Inc. owns all of the Schwartz, Inc. shares. Schwartz, Inc. merges with Mbatu Corp. Shareholders of Mbatu Corp. receive Patrice Inc. shares in exchange for their Mbatu Corp. stock.