Overview of Acquisition Structures Spring 2016 SF01/309065

Acquisition Structures Entity level: Merger & asset sale—requires entity being sold to be a party Shareholder level: Stock sale—is a transaction with the shareholders Others (schemes of arrangement, etc), but these won’t be covered significantly in this class SF01/309065

Mergers Legal combinations, pursuant to state corporations statutes—if you make certain filings Two entities become one as a matter of law upon the filing Can also have a “consolidation”—two companies combining into a single, third company, but these are less common SF01/309065

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Steps in Basic Merger Target shareholders $ or A stock for T shares (T assets and liabilities) Acquirer (A assets & liabilities) Merged into SF01/309065

Result of Basic Merger Former target shareholders Acquirer ($ or A stock) Acquirer (A assets and liabilities & T assets and liabilities) SF01/309065

Steps in Forward Triangular Merger Acquirer (A assets & liabilities) Target shareholders $ or A shares for T stock Target (T assets and liabilities) Acquisition sub Merged into SF01/309065

Result of Forward Triangular Merger Acquirer (A assets & liabilities) Former T shareholders ($ or A stock) Acquisition sub (T assets and liabilities) SF01/309065

Steps in Reverse Triangular Merger Acquirer (A assets & liabilities) Target shareholders $ or A shares for T stock Target (T assets and liabilities) Acquisition sub Merged into SF01/309065

Result of Reverse Triangular Merger Acquirer (A assets & liabilities) Former T shareholders ($ or A stock) Target (T assets and liabilities) SF01/309065

Asset Sales Can be statutory approval/appraisal rights if “substantially all” of the assets of the target company are acquired But no “merger” or similar filings (both entities survive)—subject to “de facto merger” considerations in extreme (highly unusual) cases SF01/309065

Steps in Asset Sale Target shareholders $ for T assets Target (T assets and liabilities) $ for T assets Acquirer Assets & assumed liabilities SF01/309065

Result of Asset Sale Target shareholders Acquirer (A assets and liabilities & T assets and assumed liabilities) Target (pile of $ & remaining liabilities) SF01/309065

Stock Sales Shareholder-level transaction Can be “hostile” or at least unfriendly (target-board opposed) Usually the acquirer and the target’s Board ultimately agree on terms; successful pure hostile deals are very rare Public offer to all SHs: tender offer requires an SEC filing of the Schedule TO (offer to purchase) in the case of an offer for a listed (public traded) company SF01/309065

Steps in Basic Stock Purchase Acquirer Target shareholders $ or A stock for T stock Target (T assets and liabilities) SF01/309065

Result of Basic Stock Purchase Acquirer Former T shareholders ($ or A stock) Target (T assets and liabilities) SF01/309065

Which is Better: Stock or Assets? Paper work/detail level Target SHs: Merger or stock sale not as messy Acquirer: Same, but harder to cherry pick Liabilities assumption/shifting Target SHs: Cash merger or stock sale Acquirer: Asset sale Hold out shareholders ( leverage) Stock sale gives them leverage in most cases Timing to gain control of the target Tender offer is faster than merger absent approvals Tax and accounting (not our focus) Can you explain why? SF01/309065