Double Dummy Mergers: U.S. Federal Tax Treatment

Summary

This practice note provides a tax overview of a corporate acquisition structure commonly referred to as a double dummy merger and focuses on these types of mergers in the context of a public company acquisition. Double dummy mergers are often used in friendly public company acquisitions and when both the acquiring corporation and the target corporation are of similar size (i.e., a merger of equals). The acquiring corporation usually intends to acquire the target corporation using both stock and cash (but other scenarios exist, e.g., all stock deals). Depending on the facts, a double dummy merger can be structured as completely tax-free, partially tax-free, or as a taxable purchase, but typically they are structured as partially tax-free transactions.