Business Law II Mergers and Takeovers

The shareholders of the merged corporation receive

(1) payment for their shares in the merged corporation, (2) shares in the surviving corporation, or both.

Generally, the acquiring corporation only purchases the assets, not the liabilities, of the other corporation. However, there are exceptions when:

(1) the acquiring corporation impliedly or expressly assumes the seller's liabilities; (2) the sale is a de facto merger or consolidation; (3) the acquiring corporation continues the seller's business and retains the same personnel; or (4) the sale is fraudulently executed in an effort to avoid liability.

Consolidation:

A contractual and statutory process by which (1) two or more corporations join to become a completely new corporation (the successor corporation), (2) the original corporations cease to exist and to do business, and (3) the successor corporation acquires all of the assets and liabilities of the original (now defunct) corporations.

Short-Form Merger:

A merger between a parent and a subsidiary (at least 90% owned by the parent) which can be accomplished without shareholder approval.

Exchange Tender Offer:

An offer to give shares in the acquiring corporation in exchange for shares in the target corporation

Cash Tender Offer:

An offer to pay cash in exchange for shares of the target corporation.

Merger:

Combination of two or more companies into a single firm. A contractual and statutory process by which one corporation (the surviving corporation) acquires all of the assets and liabilities of another corporation (the merged corporation), causing the latter to become defunct.

Termination - Dissolution

Dissolution may occur if (1) the shareholders unanimously vote to dissolve; (2) the board of directors votes to dissolve and the shareholders approve the board's action; or (3) a court orders the corporation dissolved in response to (a) a petition by an authorized state officer for failure to pay taxes or file required reports; or (b) a petition by one or more shareholders alleging that (i) the board or the controlling shareholder acted fraudulently, illegally, or oppressively, or (ii) the board is deadlocked and unable to conduct the corporation's affairs.

Share Exchange:

Exchanging some or all of a corporation's shares for some or all of another corporation's shares, after which both corporations continue to exist and do business.

Appraisal Rights

No shareholder who votes against the merger, consolidation, or share exchange must accept shares in the surviving, successor, or other corporation. Instead, he may (1) have his shares of the pre-merger or pre-consolidation corporation appraised, and (2) be paid the fair market value of his shares by the pre-merger or pre-consolidation corporation

MERGER, CONSOLIDATION & SHARE EXCHANGE: PROCEDURE

One or more states' laws will govern the procedures for any merger, consolidation, or share exchange. In general: (1) each corporation's board of directors must approve the plan's terms and conditions; (2) the plan must state the value of each corporation's shares and how they will be converted or exchanged; (3) a majority of each corporation's shareholders must approve the merger, consolidation, or exchange plan by vote at a called or scheduled shareholders' meeting; (4) the approved plan must be filed with the appropriate state officials; (5) the state will issue, as appropriate, a certificate of merger to the surviving corporation or a certificate of consolidation to the successor corporation.

MERGER, CONSOLIDATION & SHARE EXCHANGE: SHAREHOLDERS' RIGHTS

Shareholders must approve any "extraordinary" matter, such as a merger, consolidation, or share exchange.

Takeover Defenses

Strategies implemented by target to thwart a takeover. include various measures included in a corporation's articles or by-laws that automatically take effect in the event of a proxy fight or unfriendly takeover attempt in order to make the corporation a substantially less attractive target for the purchaser (e.g., "golden parachutes," "poison pills"), as well as conscious efforts of management in response to a particular situation (e.g., "crown jewels," "white knights").

Does Asset Purchase need shareholders approval?

The acquiring corporation does not need shareholder approval unless the purchase is to be paid for with stock and the acquiring corporation must issue additional shares to make the purchase, in which case its shareholders must approve the additional shares.

Stock Purchase:

The purchase of a sufficient number of voting shares of a corporation's stock, enabling the acquiring corporation to exercise control over the target corporation. A stock purchase is generally facilitated by a tender offer to the target corporation's shareholders. The tender offer is publicly advertised, available to all shareholders, and offers to pay a higher-than-market price for shares of the target corporation.

Terms and Duration of Tender Offer:

The terms and duration of, and the circumstances underlying, a tender offer are strictly regulated by federal securities laws. In addition, most states impose additional regulations on tender offers.

ASSET PURCHASE

When a corporation acquires all or substantially all of the assets of another corporation, by direct purchase, the purchasing (or acquiring) corporation simply extends its ownership and control over the additional assets. A purchase of the firm's assets rather than the firm itself.

Winding Up:

When a corporation dissolves voluntarily, the directors, as trustees of the corporation's assets, are responsible for winding up the corporation's affairs for the benefit of its creditors and shareholders and are personally liable for any breach of their fiduciary duties.