1. Overview of Acquisition Structures
Spring 2016
SF01/309065

2. 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

3. 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

4. SF01/309065

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

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

7. 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

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

9. 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

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

11. 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

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

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

14. 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

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

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

17. 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