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Merger and Acquisitions
University of Kansas School of Law
Hecker, Edwin Webb

Mergers & Acquisitions
Fall 2014
I.                   DEAL STRUCTURE
a.       Statutory Merger
                                                              i.      Basic Structure – see photocopy p. 1
1.      Board Resolution – BOD of transacting companies adopt and recommend to SH a plan of merger – 251(b)
a.       Terms and conditions of merger
b.      Mode of executing merger
c.       Statement re: COI
                                                                                                                                      i.      Merger – Statement of changes to COI of surviving corp. or statement that COI will not be changed
                                                                                                                                    ii.      Consolidation – Statement that COI of resulting corp is set out in an attachment
d.      Manner of converting shares of constituent corps into shares, rights, or other property
e.       Other details deemed desirable
2.      SH Approval – SH then approve plan of merger – 251(c)
a.       Surviving corp then files a certificate of merger
                                                                                                                                      i.      Target merges into acquiring corp and T ceases to exist
                                                                                                                                    ii.      T's assets and liabilities become assets and liabilities of A
                                                                                                                                  iii.      T SH either turn T shares into T and receive consideration or exchange T shares for A shares – 251(b)(5)
b.      Consideration may be
                                                                                                                                      i.      A stock
                                                                                                                                    ii.      Debt
                                                                                                                                  iii.      Cash
                                                                                                                                  iv.      Property
3.      BOD Option to Terminate or Amend Merger Agreement – 251(d)
a.       Terminate – Merger agreement may contain provision giving BOD of any constituent corp. power to terminate agreement before agreement becomes effective, notwithstanding approval of agreement by SHs
b.      Amend Before SH Approval – Agreement may allow for constituent BODs to amend agreement before it becomes effective and before original agreement adopted by SHs
c.       Amend After SH Approval – BOD may amend agreement that was already adopted by SHs as long as the amendment does not
                                                                                                                                      i.      Alter or change consideration SHs received;
                                                                                                                                    ii.      Alter or change any term of COI of surviving corp.; or
                                                                                                                                  iii.      Adversely affect any SHs of constituent corp.
                                                            ii.      SH Approval
1.      Generally, each constituent corp's SH must approve merger by vote of majority of outstanding voting shares – 251(c)
2.      Exceptions – No SH vote required for surviving corp. –  251(f)
a.       20% Rule
                                                                                                                                      i.      Merger agreement does not amend COI of surviving corp;
                                                                                                                                    ii.      All shares of surviving corp outstanding before merger will be identical shares of surviving corp after merger; and
                                                                                                                                  iii.      Either
1.      No common shares of surviving corp and no securities convertible into common shares of surviving corp will be issued or delivered; or
2.      Such shares or securities convertible into such shares to be issued or delivered under the plan do not exceed 20% of the common shares of the surviving corp outstanding before the merger
b.      No shares of corp have been issued (applies to both constituent corps.)
c.       Must then either
                                                                                                                                      i.      File the agreement and certify on it that 251(f) has been used and its conditions satisfied; or
                                                                                                                                    ii.      File a certificate of merger or consolidation
3.      Appraisal Rights – see below
b.      Holding Company Merger – 251(g)
                                                              i.      Process – see photocopy p. 4
1.      HC incorporated by Operating Company (i.e., OC BOD)
2.      HC issues HC stock to OC
a.       Simple Way (deal directly w/OC SH) – HC issues HC stock to OC SH; OC SH turn in OC stock to HC
                                                                                                                                      i.      Tough to get tax-free status (this is a B reorg)
                                                                                                                                    ii.      Tough to get all OC SH to exchange their OC shares
b.      Holding Co Merger (an “A” reorg (i.e., statutory merger) that results in two companies)
                                                                                                                                      i.      OC creates a merger sub in addition to HC
                                                                                                                                    ii.      OC and merger sub agree to merger (merger sub merges into OC)
                                                                                                                                  iii.      OC SH turn in OC stock to HC and receive HC stock in exchange
                                                            ii.      No SH Vote – If OC SH's investment has not substantively changed, they do not get to vote – 251(g)
                                                          iii.      Requirements
1.      CC and WOS are the only constituent entities to the merger;
2.      All shares of CC are converted into equal shares of a holding company (HC) having the same rights

– fundamental organic change
                                                          iii.      Asset Transactions and De Facto Mergers – Asset deals may, in effect, be mergers
1.      The deal alters the original fundamental relationships of SH among themselves and to the corp – Farris v. Glen Alden (Pennsylvania case)
a.       Such a deal results in a SH having a different investment than the one it bargained for
b.      In which case, SH should have appraisal rights
2.      But see Delaware – dissenters have no appraisal rights
a.       Sec. 271 asset sale that accomplishes the same result as a merger is legal – Hariton v. Arco (i.e., dissenters have no appraisal rights)
b.      This is supported by the doctrine of independent legal significance
                                                          iv.      Successor Liability in Asset Purchases
1.      Generally, buyers do not inherit liabilities from sellers (which can leave sellers’ creditors in the lurch after the deal closes)
2.      If seller liquidates and dissolves
a.       Corp BOD must pass resolution that is approved by majority of SH – 275(a) & (b)
b.      Corp continues operating for purposes of paying creditors even after cert of dissolution has been filed – 278
                                                                                                                                      i.      Corp continues operating for 3 yrs for purposes of paying creditors, defending suits, and to distribute remaining assets to SH
                                                                                                                                    ii.      If suit is brought against corp before or during 3-yr period, corp continues in existence until suit is completed
c.       Dissolved corp may give notice to known creditors (but not required to do so) – 280
                                                                                                                                      i.      Creditors must be given at least 60 days to make a claim and demand payment
1.      Publish notice in the paper; or
2.      Send notice to known creditors
                                                                                                                                    ii.      Creditors' failure to make timely claim bars the claims – 280(a)(2)
                                                                                                                                  iii.      Corp may reject claims presented – 280(a)(3)
                                                                                                                                  iv.      Corp may reject a claim, which requires claimant to sue corp w/in 120 days or the claim will be barred – 280(a)(4)
d.      Corp offers security for contingent claims – 280(b)