Page 345 - מיזוגים ורכישות - פרופ' אהוד קמר תשפב

C.F.R. § 225, Appendix A). The Federal Reserve has made it clear that this standard
applies to foreign acquirors as well, and has cited foreign banks’ compliance with the
Basel Accords in support of its approval of cross-border deals. Under Regulation Y (as
discussed in Annex B), institutions that are "well capitalized" and "well managed" and that
have "satisfactory" Community Reinvestment Act (CRA) ratings (within the meaning of
the applicable regulations) can take advantage of an expedited approval process in certain
circumstances, and under the Gramm-Leach-Bliley Act such status is critical to
maintaining an institution’s status and privileges as a "financial holding company.”
Careful consideration of capital impact and possible structuring alternatives is of
heightened importance when the transaction involves the acquisition of a business that
is potentially subject to greater or different capital requirements than an acquiror has
previously been subject to, or the acquisition involves operating in a jurisdiction with
greater or different capital requirements for similar businesses. In situations of significant
capital surplus, appropriate acquisitions can be an important way of dealing with excess
capital, which is one of the reasons that many mutual-to-stock and mutual-holding-
company-to-stock conversions have been announced simultaneously with significant cash
or part-cash acquisitions.

B. Tax Considerations

As a result, both of an acquiror’s need to conserve capital and the desire of the
target’s shareholders to have the opportunity for tax deferral, many substantial financial
institutions mergers are likely to continue to be structured as tax-free stock-for-stock
transactions (although in the special case where the target stock price has fallen
precipitously and the large majority of target shareholders would be expected to realize
a loss, a taxable structure may be sought). There are generally four forms of transactions
in which tax-free treatment can be achieved for shareholders who exchange their stock
in the target company (referred to herein as Target) for stock in the acquiring entity
(referred to herein as Acquiror).

1. Direct Merger

Target merges directly with and into Acquiror, or vice versa. This will generally be
nontaxable to Target, Acquiror and Target’s shareholders who receive only stock of the
surviving corporation, excluding Nonqualified Preferred Stock (as defined below),
provided that stock constitutes at least 40 percent of the total consideration. In
September 2005, the IRS finalized regulations, proposed in 2004, which provide that the
value of the stock received by shareholders generally is determined as of the last business
day before the merger agreement is signed if the merger agreement provides for "fixed
consideration" (discussed further below). The 2005 final regulations were revised by
temporary regulations issued in March 2007.

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