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Merger and Acquisitions
University of Florida School of Law
Harmon, Edward B.




Types of Structures

Short Form Merger

Parent owns 90% or more of subsidiary à only Parent BOD need take action
Appraisal rights exist


Board Approval

Bidder = yes
Target = yes

S/H Approval

Bidder = yes, must ratify
Target = yes, must ratify

Need majority of all outstanding shares to ratify


Asset Acquisition

Board Approval


Paying in cash: No, unless it is a material sum of cash
Paying in stock: Yes


Yes, if “substantially all assets”

S/H Approval

Bidder = S/H do not vote

Exception: NYSE 20% rule à S/H vote if issuing more than 20% stock to purchase


Sale of “substantially all assets” = YES, S/H vote

A “fundamental change”
Need majority of outstanding shares to ratify

Not a sale of “substantially all” assets = NO, S/H do not vote

What qualifies as “sale or transfer of substantially all assets?”

Gimbel Test:

(1) Vital to corporation,
(2) Out of OCB,
(3) Substantially affects existence and purpose

If yes to all 3 = S/H vote

How to best protect yourself in an asset deal?

(1) Extensive due diligence
(2) Buy only assets wanted and assume only liabilities explicitly stated
(3) Include extensive schedules of all possible liabilities you are NOT assuming
(4) Get specific indemnification for all liabilities not assumed and those included in the exhibits
(5) Get escrow for protection on your ability to collect on indemnification claims
(6) If liability can be resolved before closing, make it a condition precedent

Stock Acquisition

Board Approval

Bidder = yes, if material amount
Target = no, S/H decision

S/H Approval

Bidder = only if issuing 20% or more of stock in purchase (NYSE rule)
Target = no, S/H decision to tender into offer

Triangular Merger

Board Approval

Bidder = no, not a party to the merger
Target = yes

S/H Approval

Bidder = no, not a party to the merger
Target = yes

Appraisal Rights (ONLY APPLY TO MERGERS)

General Rule: S/H to each constituent party to a merger has appraisal rights

Exceptions – No appraisal rights if:

(1) S/H of public company or private company w/ more than 2,000 S/H (market out exception)
(2) S/H do not vote on deal

Exception to the Exception:

Even if company is public, appraisal rights are restored if S/H of either party receives anything other than securities for fractional shares

Ex., all cash merger = appraisal rights are restored

How to Perfect?

(1) Hold stock continuously through merger
(2) Send written notice to corporation, prior to S/H vote, saying you intend to exercise appraisal rights
(3) Do not vote in merger vote

Determining Fair Value in an Appraisal Proceeding

Weinberger v. UOP

Majority S/H can force out a minority S/H, but that majority S/H has burden of establishing entire fairness
Entire Fairness Test

(1) Fair Dealing

(a) Timing of transaction,
(b) How it was initiated, structured, negotiated, and
(c) How approval of Board and S/H was obtained

(2) Fair Price

Must take all relevant factors into account
DCF is common method


If done at arm’s-length – then BJR will apply
If conflict – entire fairness test will apply

Board Approval

S/H Approval

Appraisal Rights



– Yes


– Yes


– Yes

– Exception – 251(f)

No, if:

(1) Doesn’t amend certificate,

(2) No change in equity, and

(3) Shares to be issued/delivered are < 20% or if paying cash


– Yes


– Yes (if didn’t vote in favor)

– Exception: No, if no S/H vote

– Exception: No, if T is public


– Yes

– Exception: No, if T is public

– Exception to Exception: Yes, if req’d to receive anything other than stock

Asset Sale


– No (if paying cash)

– Yes (if paying w/ stock)


– Yes


– No (if paying cash –

No resale for 6 months
After 6 months = can sell, file Form 144, must be public info available

No resale for 1 year
After 1 year, can sell subject to limitations, must file Form 144


No resale for 6 months
After 6 months, before 1 year = can sell as long info about issuer is public
After 1 year, no limitations

No resale for 1 year
After 1 year = can sell w/o restriction

Federal Proxy Rule

Governs how public companies disclose information about S/H meetings, transactions, etc.

Rule 10b-5 and Timing of Disclosure of Acquisition Negotiations

Rule 10b-5

General Rule

Unlawful for any person to make any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in connection w/ purchase or sale of security

Basic, Inc. v. Levinson

p must show that statements were misleading as to a “material” fact
When are merger talks a “material” fact?

Rule: probability x potential magnitude

If you do make statements they must be true

p must rely on statement
What should you do?

“We do not comment on these things”

Rule 14e-3: Liability for Trading on Tender Offer Information

Section 14(e) – prohibits trading while in possession of material, non-public info relating to a tender offer
Rule 14e-3

“Disclose or abstain from trading” requirement
If corporation has taken substantial steps to begin a tender offer & a person has material info relating to it & he has knowledge or reason to know it is non-public & knows or has reason to know it has been obtained from offering person, issuer, or any officer, director, partner, or employee, then that person can’t purchase or sell unless publicly discloses the purchase or sale within a reasonable time prior to the purchase or sale.

Section 16(b): Short-Swing Profits