What happens to liabilities in a merger

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What happens to liabilities in a merger

What happens to liabilities in a merger

Two companies controlled by the daughters of the late millionaire owner of Spag’s Supply Inc. have filed for bankruptcy with $6.1 million-plus in unfunded pension liabilities for 400 former employees of the defunct no-frills discount store.

What happens to liabilities in a merger

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All liabilities transfer to the buyer by operation of law, wanted or not. However, the buyer can contractually allocate liabilities to the seller by selling them back. So, what happens is the contracts get transferred automatically from A to C, but then, if the parties agree, the contracts will be transferred back to A/AC. When companies do an asset purchase, they risk the transaction being characterized as a de facto merger, meaning a court will treat it like the companies merged instead of one company just buying the assets of the other. Were it to be considered a merger, the purchasing company would then be stuck with all of the liabilities of the target company. Tax basis remains at $100mm, but FMV (what is recorded on books) is $300mm. You have a "realized gain" of $200mm, but have not yet "recognized" the gain. So the deferred tax liability is related to the deferral of taxes on the $200mm gain that has not been "recognized". Calculated as the gain x the buyer's tax rate.

What happens to liabilities in a merger