Under the prior terms of the merger agreement, completion of the merger was conditioned on the receipt of an opinion from each party’s counsel to the effect that the merger will be treated as a tax-free reorganization under Section 368(a) of the internal revenue code.
Given the unprecedented market conditions of the past few weeks, and the current trading price of Invitrogen’s common stock, the parties determined that they currently might not be able to obtain the necessary opinions because of the relative value of the cash consideration to be received by Applied Biosystems stockholders as compared to the value of the stock consideration they will receive. Applicable tax regulations generally limit the percentage of the consideration that can be paid in cash if the transaction is to qualify as a tax-free reorganization.
Under the US tax code, if the merger qualifies as a tax-free reorganization for tax purposes, gain realized by a US holder of Applied Biosystems stock will only be taxable to the extent of the cash portion of the merger consideration. Loss, if any, will not be recognized at the time of the merger.
If the merger does not qualify as a tax-free reorganization, then US holders of Applied Biosystems stock will recognize gain (or loss) to the extent that the value of the cash and stock consideration they receive exceeds (or is less than) the tax basis of the Applied Biosystems shares they own.