What is a “Reverse Morris Trust”?


When Disney wanted to unload ABC Radio (selling it to Citadel), they used a Reverse Morris Trust – the same mechanism is probably in play for the CBS Radio spinoff to Cumulus Media if it happens.

This is pretty confusing stuff, but here goes. If ABC Radio was on the books for a lot less than the proceeds from selling the stations and network, the sale would trigger a significant tax liability. A reverse Morris Trust avoids that. Disney contributed its stations to a new hybrid entity that was then given back to the Disney shareholders and the minority “ownership” of the new entity merged with the acquiring company, so in theory Citadel did not actually buy ABC radio, so no taxable event happened. The Citadel stock then could be sold to other parties.

The former ABC radio stations never transferred directly to Citadel, but remain in the Morris Trust entity.

Keep in mind these days that measuring “ownership” by looking at stock is hopelessly out of date and naive. Most companies these days are “owned” by their debt, not their equity.

The Disney/ABC deal was further muddled by the almost immediately bankruptcy of Citadel. My impression, which could be wrong – is that Disney was holding debt owed by the morris trust and their stations secured the debt – meaning that Disney probably retained legal ownership over the stations coming out of Citadel’s bankruptcy.

When Cumulus stepped forward to buy Citadel, they likely incorporated Disney’s security interest in those stations.

If CBS is spun off to Cumulus, they will have to divest those ABC AM Stations. What I’m thinking here is ABC radio is going to revert back to Disney ownership which is why Cumulus doesn’t care if it destroys them. In the last weekend, WLS, WABC and KGO preempted long standing weekend programming in Sunday nights to run colon cleanser infomercials.

The stock markets are starting to behave like this deal is going to happen. It will be so convoluted that the SEC,FTC, FCC and IRS will never unravel what is actually happening

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