Mergers

In a merger, two entities are joined by the operation of law. Normally, one entity disappears and the other continues as the successor to its business. All assets and liabilities become the property of the surviving entity. If the target entity, but not the acquiring entity, is to be the surviving company, this is called a reverse merger. To be effective, merger documents must be filed with the state. The target company members or stockholders may be eliminated by buying out their interest in a target company or by converting their shares into the shares of the buyer or any other company.

The outline of the merger process:

Statutory merger

·         Acquirer (A) merges with Target (T), with A or newly formed company continuing

·         T’s shareholders get consideration

·         A and T’s liabilities remain with surviving co.

·         A board votes and T board votes

·         A shareholders vote and T shareholders vote

·        A and T shareholders may get appraisal rights (unless they receive publicly-traded shares in exchange). DE rule: 1) Shares listed on NYE or held by more that 2,000 shareholders & 2) received shares have similar characteristics (voting & dividend rights).

Triangular merger

·         A creates a wholly-owned subsidiary S and gives it the consideration to be transferred to T shareholders

·         S merges with T just like in a statutory merger

•         Reverse triangular merger – T survives
•         Forward triangular merger – S survives

Advantages to A

·         Keeps T’s liabilities at subsidiary level (the parent is protected by a corporate veil)

·         A shareholders don’t vote (unless need to issue lots of new A stock as consideration)

·         A shareholders don’t get appraisal rights (the only shareholder of S is A’s board)

In mergers where the purchaser owns 90% or more of shares:

·         T shareholders don’t vote

·         No fairness review

·         T shareholders get appraisal rights