Merger Parties Rely on IRS "Signing Date Rule" for Intended Tax Treatment

Robbins & Myers, Inc. has registered common stock valued at approximately $386 million in connection with a proposed merger with T-3 Energy Services, Inc. (Form S-4 on 11/10/10, SEC file no. 333-170502).  If the merger is completed, T-3 stockholders will receive 0.894 issuer common shares plus $7.95 in cash, without interest, for each T-3 common share.  This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger. 

In order to qualify as a tax-free reorganization, the merger must comply with certain requirements under Section 368(a) of the Internal Revenue Code, including that at least 40% of the total consideration received by target stockholders in the merger must consist of Robbins common stock.  Because the terms of the merger agreement provide for a fixed number of common shares to be transferred to T-3 stockholders, it is unknown at the time of the special meetings whether the 40% continuity of interest test will be met if such calculation is based on the value of the Robbins stock on the closing date of the merger. 

The Treasury Department has provided guidance in the form of temporary and proposed treasury regulations, whereby if a binding contract that provides for fixed consideration is entered into, fluctuations in the value of the stock consideration subsequent to the entry into the contract will not affect the determination of whether the transaction qualifies as a Section 368(a) reorganization.  Robbins and T-3 will use this "signing date rule" for purposes of applying the continuity of interest test.  Even though the temporary treasury regulations expired on March 19, 2010, Notice 2010-25, 2010-14 I.R.B. provides that the proposed treasury regulations may be relied on by certain parties involved in the transactions if all such parties elect to apply the provisions under the regulations.