Merger: A contractual and statutory process by which one corporation (the surviving corporation) acquires all of the assets and liabilities of another corporation (the merged corporation), causing the merged corporation to become defunct.


       As part of the merger process, the shareholders of the merged corporation receive


(i)           payment for their shares and/or

(ii)        shares in the surviving corporation.


Conceptually, it looks like this:  A +B= A    (where A is the surviving corporation and B was the merged corporation.)



Consolidation: A contractual and statutory process by which


( 1 )       two or more corporations jointly become a completely new corporation (the successor corporation),


(2)  the original corporations cease to exist and to do business, and


( 3)        the successor corporation acquires all of the assets and liabilities of the original (now defunct) corporations.



Conceptually, it looks like A + B = C      (here, distinct companies A and B consolidate into a new company, C)







       Any merger or consolidation is governed by the laws of one (or more) of the states, each of which sets forth its own procedural requirements. However , in general:


( 1 )       The boards of directors of each (original) corporation involved in the proposed transaction must approve the merger or consolidation plan;


(2)  The shareholders of each (original) corporation involved in the proposed transaction must, thereafter, approve the merger or consolidation plan by vote at a called or scheduled shareholder's meeting;


(3)  The approved plan must be filed with the appropriate state official(s); and


(4)  Once all state-law formalities have been satisfied, the state will issue, as appropriate, a certificate of merger to the surviving corporation or a certificate of consolidation to the successor corporation.


While it sounds simple, this could take months to accomplish.




Short-Form Merger: A merger between a parent and a subsidiary (at least 90% owned by the parent) which can be accomplished without shareholder approval.  Why?  In essence, the sub is already the parent anyway due to the very high ownership percentage (at least 90%), so why cause any more expense and hassle?







While the day-to-day operations of a corporation, and even the policies governing its ongoing operations, are generally left to the corporation’s officers and directors, any "extra-ordinary" matter -- such as a merger or consolidation -- must be approved by the corporation's shareholders.


If the necessary majority of the corporation's shareholders approve a merger or consolidation, it will go forward, and the shareholders will be compensated. However no shareholder who votes against the transaction is required to accept shares in the surviving or successor corporation. Instead, he or she may exercise appraisal rights.


Appraisal Right: The right, created by state law, of a dissenting shareholder who objects to an extraordinary transaction (such as a merger or consolidation):


( i)  to have his or her shares of the pre-merger or pre­consolidation corporation appraised (valued), and


(ii)  to be paid the fair market value of his or her shares by the pre-merger or pre-consolidation corporation.


You can imagine how this might mess things up!







When a corporation acquires all or substantially all of the assets (as opposed to stock) of another corporation by direct purchase, the purchasing (or acquiring) corporation simply extends its ownership and control over the additional assets.


The acquiring corporation does NOT need shareholder approval unless the purchase is to be paid for with stock and the acquiring corporation must issue additional shares to make the purchase, in which case its shareholders must approve the additional shares. 


Generally, the acquiring corporation only purchases the assets, not the liabilities, of the other corporation. However, there are exceptions when:


(i)   the acquiring corporation impliedly or expressly assumes the seller's liabilities;


(ii)  the sale is a defacto (i.e., it amounts to what is in fact is a)  merger or consolidation;


(iii)     the acquiring corporation continues the seller's business and retains the same personnel; or


(iv)  the sale is fraudulently executed in an effort to avoid liability.


If any of the above events occurs, the acquiring company is deemed (considered) to have acquired both assets and liabilities of the company.



Many entities prefer to acquire “only the assets” for the liability issue, but this method also it allows them to “write up” the assets so they can be depreciated at a higher value.







Stock Purchase: The purchase of a sufficient number of voting shares of a corporation's stock, enabling the acquiring corporation to exercise control over the target corporation.


A stock purchase is generally facilitated by a tender offer to the target corporation's shareholders.  The tender offer is publicly advertised, available to all shareholders, and offers to pay a higher-than-market price (premium) for shares of the target corporation.


Exchange Tender Offer: An offer to give (exchange) shares in the acquiring corporation in exchange for shares in the target corporation.


Cash Tender Offer: Duh! An offer to pay cash in exchange for shares of the target corporation.


A tender offer may be conditioned on receiving a specified number of outstanding shares in the target corporation by a specified date.


The terms and duration of, and the circumstances underlying, a tender offer are strictly regulated by federal securities laws. In addition, most states impose additional regulations on tender offers.







Beachhead Acquisition: An initial block of shares of a takeover target sufficient to enable the purchaser to launch a proxy fight.



Proxy Fight: An attempt by a purchaser to acquire sufficient shares and voting commitments to take control of the takeover target.  For example, the recent Compaq/HP duel.



Leveraged Buy-Out (LBO): The purchase of all publicly- held shares of a takeover target by its management or some other "inside" group, usually through undertaking substantial debt (hence, the "leverage") in order to take the company "private" and avoid a hostile takeover by an outsider.  Unfortunately, this usually hurts the company by the huge debt load and possibly poor quality of debt (junk bonds, etc.)


Takeover Defenses include various measures included in a corporation's articles and/or by-laws that automatically take effect in the event of a proxy fight or unfriendly takeover attempt in order to make the corporation a substantially less attractive target for the purchaser (e.g., "golden parachutes,- usually huge buyout costs on executives being ousted [notice its not for everyone, only the big fat cats]" "poison pills”-usually allowing existing shareholders to buy company stock very cheap, which vastly increases the number of shares outstanding, making the buyout much more expensive), as well as conscious efforts of management in response to a particular situation (e.g., "crown jewels”, - where the company sells its main assets to someone else) "white knights"- where they appeal to a more friendly company to take them over).  In general, these are very expensive or hassle filled events that would cause a potential acquirer to think twice about continuing their efforts to acquire the company.  The text has many other examples.






Dissolution: The formal disbanding of a corporation, also known as the legal death of a company, which may occur by


(1)  an act of the legislature in the state of incorporation,


( 2) voluntary approval by the corporation's shareholders upon recommendation by the directors,


(3)  unanimous action by all shareholders (without director involvement),


(4)  expiration of the time period set forth in the certificate of incorporation, or


(5)  court order.



Liquidation: The process by which corporate assets are converted into cash and distributed among creditors and shareholders according to specific rules of preference.  For example, the “secured” assets are sold and the secured creditor is paid first, etc.