It was no secret CBS corporate wanted any deal for its radio assets to be tax friendly – enter the “Reverse Morris Trust.” A Reverse Morris Trust makes the deal tax-free to CBS shareholders. A Reverse Morris Trust is a tax-optimization strategy in which a company wishing to spin off and subsequently sell assets (CBS) to an interested party (Entercom) can do so and avoid taxes on any gains from disposing the assets.
The key feature to preserve the tax-free status of a Reverse Morris Trust is that after its formation, stockholders of the parent company own at least 50% of the stock by vote and value of the combined or merged firm. In this deal, CBS shareholders will have the opportunity to exchange all, some, or none of their CBS shares for CBS Radio shares. Immediately following the completion of this exchange offer, CBS Radio will merge with an Entercom subsidiary, with the new CBS Radio shareholders receiving Entercom shares in exchange for their CBS Radio shares in the transaction. After completion of the merger, CBS Radio shareholders will receive approximately 105 million Entercom shares, or 72% of all outstanding shares of the combined company on a fully diluted basis. Existing Entercom shareholders will own 28% of the combined company on a fully diluted basis.
The transaction must be approved by Entercom shareholders. Entercom Chairman Joseph Field, a controlling shareholder of Entercom, has agreed to vote in favor of the transaction. The transaction is expected to close during the second half of 2017, subject to certain regulatory approvals and other customary closing conditions.
In a note to employees, CEO David Field said the following about the founder of the company, his father Joseph Field. “Joe recently turned 85 and we had the great privilege of celebrating his birthday at our recent GM meetings in Philadelphia. As we reflect on today’s news, it is important to recognize that none of this would have been possible without Joe. When Joe first had his vision about the great future of Radio, he barely had two nickels to rub together. It was just a dream. With unshakable grit, determination, resolve and intelligence, Joe navigated the company forward through the perils of those early years and overcame incredible odds to enable Entercom to survive. The rest, as they say, is history. As I reflect on the company’s humble beginnings 49 years ago, I could not be happier for him and for all of us.”
