Help with Triangular Mergers and Acquisitions!!!! Forum

[MoltenWings]

Three Questions:
1) Why would a corporation want to do a triangular merger instead of a statutory merger?

2) What is a compulsory share exchange Transaction (RMBCA) and why would you want it over statutory merger?

3) In an acquisition, can the acquiring corporation give consideration other than cash? for instance, if stock of acquiring corporation can be given, is this not a merger w/o having to get a acquiring corporation's shareholder vote?

[bk1]

1. The acquiring corporation can avoid having to get shareholder approval. The board creates a subsidiary (S) where the acquiring corporation (A) is the sole shareholder. The A board then fills the S board with flunkies. Since mergers generally require shareholder and board approval, when the target corporation (T) merges into S, you need approval by:

Shareholders of T
Board of T
Shareholders of S (which the board of A casts the vote as the sole shareholder of S)
Board of S (which should vote the way the board of A wants because they were put in power by the A board)

You've essentially cut out getting approval from the shareholders of A whose approval would have been required had T merged into A.

2. Didn't cover that.

[MoltenWings]

1. The acquiring corporation can avoid having to get shareholder approval. The board creates a subsidiary (S) where the acquiring corporation (A) is the sole shareholder. The A board then fills the S board with flunkies. Since mergers generally require shareholder and board approval, when the target corporation (T) merges into S, you need approval by:

Shareholders of T
Board of T
Shareholders of S (which the board of A casts the vote as the sole shareholder of S)
Board of S (which should vote the way the board of A wants because they were put in power by the A board)

You've essentially cut out getting approval from the shareholders of A whose approval would have been required had T merged into A.

2. Didn't cover that.

THank you!

One more question:

In a merger, can a shareholder, who was not required to vote (or just didn't vote), get appraisal rights? That is, did the shareholder actually have to vote negatively on the merger to get appraisal rights under DGCL 262?

[bdubs]

1) The only reason to do a reverse triangular merger over a straight up merger is to maintain the liability shield and contractual obligations of the T. There is very little reason to do a non-reverse triangular merger.

2) My class also barely talked about RMBCA, sorry.

3) Yes, they can use any sort of compensation they want so long as the T s/h are willing to accept it. The A company will have to vote on any equity issuance that exceeds 20% of their outstanding shares (per DGCL and NYSE/Nasdaq). If they keep the equity issuance under 20% then no vote is required unless they trigger one of the other voting requirements (change in charter, change in share structure).

[bdubs]

In a merger, can a shareholder, who was not required to vote (or just didn't vote), get appraisal rights? That is, did the shareholder actually have to vote negatively on the merger to get appraisal rights under DGCL 262?

No, you have to vote (and vote no) to get appraisal rights.

[MoltenWings]

In a merger, can a shareholder, who was not required to vote (or just didn't vote), get appraisal rights? That is, did the shareholder actually have to vote negatively on the merger to get appraisal rights under DGCL 262?

No, you have to vote (and vote no) to get appraisal rights.

thank you!

[Antilles Haven]

A couple other things...

1. When you have a forward triangular merger, you also have the tertiary benefit of, if for some reason the 368 merger isn't respected, still being able to argue a 351(a) or (b) reorganization, in which you can maintain nonrecognition, because between the two contributing corporations, you have a de facto 100% post organization control, and you're still doing in exchange for stock of the sub.

3. This entirely depends on the type of acquisitive reorganization you're going for. If it's a 368(b) then you're required by statute to exchange solely stock-for-stock. If it's a 368(a) then there's a judicially imposed gray area between 20 and 50% requirement for stock. If it's a 368(c) then you need 80% stock, and can use 20% boot as any type of compensation; including encumbrance of debt (which, by the way, is disregarded for purposes of calculating the "substantially all" 80% requirement.)



Now that I've typed all this up..... exactly what class are you studying for?