INTRO
M&A Laws
1. Securities Act of 1933: requires companies issuing securities to first register their offerings with the SEC.
2. Securities Exchange Act of 1944:
a. Applies to proxy solicitation and TOs.
b. Requirements: disclosure of details to:
i. SEC
ii. Target Company
iii. Stock exchange where securities are listed
3. Federal Antitrust Laws:
a. Sherman Antitrust Act
b. Clayton Antitrust Act
c. Federal Trade Commission Act
d. Hart-Scott-Rodino Act
4. State Laws: laws of the state where target company is incorporated.
5. Industry Regulation
M&A parties
1. Buyer:
a. Strategic buyer
b. Financial buyer
2. Seller
Types of M&A Transactions and Processes
I. Sale Processes (Company-Initiated Sales)
a. Private Negotiation: Sale to strategic buyers.
b. Auction: Sale to financial buyers.
c. Negotiauction: Hybrid between private negotiation and auction.
II. Takeovers (Bidder-Initiated Acquisitions)
a. Friendly Takeover
i. Negotiated with Target management; BoD recommends approval.
b. Hostile Takeover
i. Bidder bypasses management; offers directly to s/h.
ii. Two-Step Structure:
1. Cash TO (buy majority shares).
2. Squeeze-Out Merger (eliminate minority s/h)
a. Medium-Form Merger (§ 251(h)): Streamlined squeeze-out without a
shareholder vote.
iii. Raid: aggressive attempt by an acquiring company to gain control of a target
company, usually without negotiating with the target's board first.
It’s basically a hostile takeover strategy.
III. Other Types of Transactions
a. Bust-Up Bids
i. Buyer purchases Target to sell off its assets (common in LBOs).
b. Merger of Equals
i. Two companies combine as equals with no clear acquirer.
Horizontal vs. Vertical Merger:
o Horizontal Merger: A merger between two companies that compete directly in the same industry
and at the same level of the supply chain (same type of business).
o Vertical Merger: A merger between companies at different stages of the supply chain (e.g., a
supplier and a manufacturer, or a manufacturer and a distributor).
1
,2
, M&A TRANSACTION STRUCTURES AND CORPORATE FORMALITIES
Two main structures in M&A:
Mergers: Two or more companies become one (usually statutory mergers).
o Two types of mergers:
Long form:
Negotiation BoD approval regulatory review both company s/h vote
if the deal is approved:
Two entities merge,
S/h of disappearing company receive stock, cash, or assets.
Types:
Direct merger: Target merges directly into acquirer.
Indirect merger: The target merges with a sub of the acquiring
company.
Types:
Reverse triangular merger: Acquirer's sub merges
into target (target survives).
Forward triangular merger: Target merges into
acquirer's sub (sub survives).
Feature Forward Triangular Merger Reverse Triangular Merger
Who merges into Target merges into Acquirer's subsidiary Acquirer's subsidiary merges into Target (Target
whom? (Subsidiary survives). survives).
Target company survives (becomes a subsidiary
Who survives? Acquirer's subsidiary survives.
of Acquirer).
Target shareholders vote. Target shareholders vote.
Who votes? Acquirer shareholders usually do Acquirer shareholders usually do not (unless
not (unless >20% NYSE stock issuance). >20% NYSE stock issuance).
Target shareholders have appraisal rights Target shareholders have appraisal rights (unless
Appraisal Rights?
(unless market-out exception applies). market-out exception applies).
Continuity of business Business continues inside Acquirer's Business continues directly inside the original
operations subsidiary (new legal entity). Target company.
Slightly more complex due to dissolving Often simpler — Target stays intact and absorbs
Legal Complexity
Target into Subsidiary. subsidiary.
More common if the acquirer wants to keep More common when the buyer wants
Use Case (Typical) the subsidiary structure intact for liability/tax to preserve the Target's contracts, licenses, and
reasons. other existing legal rights.
Less need for contract assignments because the
Contract Assignment May triggers need to assign Target's
Target survives (fewer third-party consents
Issues contracts to Subsidiary (complicated).
needed).
DGCL §251(b)
Bidder s/h vote not required unless Bidder issues
stock above stock exchange listing thresholds.
NewCo (Bidder’s wholly owned sub) votes to
approve merger — approval automatic.
Bidder’s s/h have no appraisal rights because
they don't vote.
State law requires:
BoD approval + shareholder approval for both companies (unless
exception applies).
Short form: s/h approval is guaranteed or assumed.
Two kinds:
Parent-and-sub merger:
Parent owns ≥90% of sub.
Parent merges sub without separate shareholder vote.
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M&A Laws
1. Securities Act of 1933: requires companies issuing securities to first register their offerings with the SEC.
2. Securities Exchange Act of 1944:
a. Applies to proxy solicitation and TOs.
b. Requirements: disclosure of details to:
i. SEC
ii. Target Company
iii. Stock exchange where securities are listed
3. Federal Antitrust Laws:
a. Sherman Antitrust Act
b. Clayton Antitrust Act
c. Federal Trade Commission Act
d. Hart-Scott-Rodino Act
4. State Laws: laws of the state where target company is incorporated.
5. Industry Regulation
M&A parties
1. Buyer:
a. Strategic buyer
b. Financial buyer
2. Seller
Types of M&A Transactions and Processes
I. Sale Processes (Company-Initiated Sales)
a. Private Negotiation: Sale to strategic buyers.
b. Auction: Sale to financial buyers.
c. Negotiauction: Hybrid between private negotiation and auction.
II. Takeovers (Bidder-Initiated Acquisitions)
a. Friendly Takeover
i. Negotiated with Target management; BoD recommends approval.
b. Hostile Takeover
i. Bidder bypasses management; offers directly to s/h.
ii. Two-Step Structure:
1. Cash TO (buy majority shares).
2. Squeeze-Out Merger (eliminate minority s/h)
a. Medium-Form Merger (§ 251(h)): Streamlined squeeze-out without a
shareholder vote.
iii. Raid: aggressive attempt by an acquiring company to gain control of a target
company, usually without negotiating with the target's board first.
It’s basically a hostile takeover strategy.
III. Other Types of Transactions
a. Bust-Up Bids
i. Buyer purchases Target to sell off its assets (common in LBOs).
b. Merger of Equals
i. Two companies combine as equals with no clear acquirer.
Horizontal vs. Vertical Merger:
o Horizontal Merger: A merger between two companies that compete directly in the same industry
and at the same level of the supply chain (same type of business).
o Vertical Merger: A merger between companies at different stages of the supply chain (e.g., a
supplier and a manufacturer, or a manufacturer and a distributor).
1
,2
, M&A TRANSACTION STRUCTURES AND CORPORATE FORMALITIES
Two main structures in M&A:
Mergers: Two or more companies become one (usually statutory mergers).
o Two types of mergers:
Long form:
Negotiation BoD approval regulatory review both company s/h vote
if the deal is approved:
Two entities merge,
S/h of disappearing company receive stock, cash, or assets.
Types:
Direct merger: Target merges directly into acquirer.
Indirect merger: The target merges with a sub of the acquiring
company.
Types:
Reverse triangular merger: Acquirer's sub merges
into target (target survives).
Forward triangular merger: Target merges into
acquirer's sub (sub survives).
Feature Forward Triangular Merger Reverse Triangular Merger
Who merges into Target merges into Acquirer's subsidiary Acquirer's subsidiary merges into Target (Target
whom? (Subsidiary survives). survives).
Target company survives (becomes a subsidiary
Who survives? Acquirer's subsidiary survives.
of Acquirer).
Target shareholders vote. Target shareholders vote.
Who votes? Acquirer shareholders usually do Acquirer shareholders usually do not (unless
not (unless >20% NYSE stock issuance). >20% NYSE stock issuance).
Target shareholders have appraisal rights Target shareholders have appraisal rights (unless
Appraisal Rights?
(unless market-out exception applies). market-out exception applies).
Continuity of business Business continues inside Acquirer's Business continues directly inside the original
operations subsidiary (new legal entity). Target company.
Slightly more complex due to dissolving Often simpler — Target stays intact and absorbs
Legal Complexity
Target into Subsidiary. subsidiary.
More common if the acquirer wants to keep More common when the buyer wants
Use Case (Typical) the subsidiary structure intact for liability/tax to preserve the Target's contracts, licenses, and
reasons. other existing legal rights.
Less need for contract assignments because the
Contract Assignment May triggers need to assign Target's
Target survives (fewer third-party consents
Issues contracts to Subsidiary (complicated).
needed).
DGCL §251(b)
Bidder s/h vote not required unless Bidder issues
stock above stock exchange listing thresholds.
NewCo (Bidder’s wholly owned sub) votes to
approve merger — approval automatic.
Bidder’s s/h have no appraisal rights because
they don't vote.
State law requires:
BoD approval + shareholder approval for both companies (unless
exception applies).
Short form: s/h approval is guaranteed or assumed.
Two kinds:
Parent-and-sub merger:
Parent owns ≥90% of sub.
Parent merges sub without separate shareholder vote.
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