Eta Corporation approaches Lily White the CEO and sole shareholder
Eta Corporation approaches Lily White, the CEO and sole shareholder of MuCo, regarding the acquisition of MuCo's cat toy division assets (worth $1.3 million). As selling the assets would create a $600,000 gain, ($1.3 million value - $700,000 basis), Lily declines the offer.
Eta counters and suggests a "Type C" reorganization as a method of acquiring all of MuCo by exchanging its voting stock for all assets (now worth $1.5 million) and all liabilities ($650,000) of MuCo. The other division of MuCo, Cat Publications, is small, with assets worth $200,000 and liabilities of $150,000. Lily agrees to the reorganization if MuCo receives the net value of the Cat Publication division ($50,000) in cash, as Lily would like money as well as stock.
Lily requests your advice on whether the transaction can be structured as a "Type C" reorganization as it is currently described. If it cannot meet the "Type C" require ments, suggest an alternative plan that will allow the transaction to qualify as a "Type C" reorganization. MuCo's address is 3443 E. Riverbank Road, Walla Walla, WA 99362. Include your analysis in a letter to Ms. White.
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