From Chat GPT 5.
A Reverse Morris Trust (RMT) is a very specific U.S. tax and deal structure — used when a company wants to spin off a business tax-free and then merge it with another company. It’s called “reverse” because, unlike the original Morris Trust structure, the smaller company (the one receiving the spun-off business) technically survives the merger.
Here’s how it works in plain terms:
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Parent company creates a spin-off
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The parent (here, BD) separates a division (its Biosciences & Diagnostics Solutions business) into a new legal entity.
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The spin-off merges with another company
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That new entity is immediately merged with a target (here, Waters Corporation).
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Parent shareholders must own >50% of the combined company
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To qualify as tax-free under IRS rules, BD’s shareholders will receive enough stock in the combined Waters + BD business so they control more than 50%. In this case, BD shareholders will own ~39% directly, but combined with mechanics of debt/cash distribution and IRS safe harbors, the transaction qualifies.
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Why companies use it
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Tax efficiency: Avoids capital gains taxes that would hit if BD just sold the unit for cash.
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Strategic cleanup: Parent company sheds a business it doesn’t want, while shareholders still benefit because they get equity in the new combined entity.
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Growth story: The receiving company (Waters) gains scale, a larger addressable market, and more stable revenues.
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In the BD–Waters case
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BD: streamlines its business around core medical devices and gets $4B in cash (for debt paydown/buybacks).
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Waters: doubles its market opportunity to ~$40B by bolting on BD’s high-volume diagnostic solutions.
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BD shareholders: end up with shares in both “new slimmed-down BD” and in the enlarged Waters, instead of paying a big tax bill.
👉 Think of an RMT as: “spin it off, then swap it in, without paying the tax man.”
Would you like me to sketch a step-by-step diagram of the RMT structure (spin-off → merger → shareholder ownership) so it’s crystal clear for slide use?
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How long own majority stock?
Great question — and it goes to the heart of how these deals are engineered.
For a Reverse Morris Trust (RMT), the critical requirement under IRS rules is that the shareholders of the parent (BD, in this case) must own more than 50% of the combined company immediately after the merger.
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Timing: It’s not about years. It’s literally about the ownership structure at the moment the deal closes.
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IRS test: The test is whether the continuity of interest and control requirements are satisfied at closing. So if BD shareholders own, say, 52% of the merged Waters entity when the dust settles, the transaction qualifies as tax-free.
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Afterward: Once the transaction is complete, those shareholders can sell their shares whenever they want — minutes, days, or years later — without jeopardizing the tax treatment.
So to your point: it could be “five minutes” — as long as BD’s shareholders truly held majority control at the instant of the merger.
This is why RMT deals are choreographed so carefully: bankers and lawyers ensure that when the deal closes, the math shows BD’s shareholders crossing that >50% line, even if trading starts and positions shift right after.
⚖️ To summarize:
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Requirement: >50% ownership by BD shareholders at the moment of closing.
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Duration: No requirement to maintain majority beyond that — the IRS only cares about the structure at closing.
Would you like me to contrast this with a plain spin-off (where BD would just distribute shares of the unit and let it trade separately) so you can see why they bothered with the more complex RMT path?
