Corporate Mergers

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Corporate Mergers

• Mike Brigner, J.D.
• PAR 202
• Bus Orgs II

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Statutory Authority

• R.C. 1701.78 to 1701.80 governs mergers
  consolidations
• Sets no criteria for mergers
• The reason businesses merge is strictly a
  business decision
• Whether to merge and when are left up to the
  officers and shareholders
• Statute primarily serves to require public notice
  of merger

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Terminology

• Constituent corporation is the term Ohio law
  uses for all entities participating in a merger
• Target corporation is the entity being
  extinguished
• Surviving corporation is, obviously, the entity
  that survives after the merger

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Terminology

• Merger NOT consolidation
• In a merger -- one existing corporation is
  consumed into another existing corporation
• In a consolidation -- two existing corporations
  go out of existence and combine to create a new
  corporation

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Rules of Merger

• Survivor corporation succeeds to all of the
  business, assets, debts, claims of the target
  corporation
• Pending claims of creditors or legal actions
  against either constituent may be prosecuted to
  judgment
• Shareholders of both corporations must approve
  the merger or consolidation

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Some Merger Combinations

• Subsidiary is merged into parent
• Parent is merged into subsidiary
• Unrelated corporations merge, one is
  extinguished, one survives

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Foreign Corporation Mergers

• Merger into a domestic corporation results in a
  domestic corporation
• Merger into a foreign corporation results in a
  foreign corporation
• Merger or consolidation must be permitted by the
  laws of both states

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Purchase of Assets

• Instead of acquiring the stock of a target, any
  corporation can buy some or all of the assets of
  another
• Makes no sense to buy the liabilities
• Target company acquires cash, is still
  responsible for own debts
• However, purchased assets are still subject to
  all U.C.C. liens

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Most Likely Candidates for Merger

• Business services
• Banking
• Communications Entertainment
• Pharmaceutical industries
• Recently, high tech e-business

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Interesting Merger Facts

• Mergers have been increasing by about 50 per
  year since 1995
• Foreign acquisitions of U.S. companies have
  declined since 1990
• U.S. companies are 5x more likely to acquire a
  foreign co. than vice-versa
• Time-Warner Inc. and AOL Inc. merger in 2000
  involved 165 billion

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Hostile Takeovers

• Transaction pursued by a bidder without support
  of targets management
• Regulated by Securities Exchange Act of 1934 and
  Williams Act of 1968
• Impose rules
• Eliminate fraud
• Require disclosures
• Protect Shareholders

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Fun Terminology

• Shark repellents or porcupine provisions -- terms
  to discourage hostile takeovers
• Golden parachutes -- Generous severance terms for
  senior managers
• Lead parachutes -- Less generous severance terms
  for others (including new mangers)

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Fun Terminology

• Poison pill -- Gives targets shareholders extra
  rights in event of takeover try
• Dead-hand poison pill -- Terms that can only be
  deactivated by the directors who established them
• Slow-hand poison pill -- Limits powers of new
  directors for some period of time

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Fun Terminology

• No-hand poison pill -- No director can remove
  pill if board changes hands
• Chewable poison pill -- Short duration pill which
  allows takeover to proceed if fully financed and
  all cash

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Fun Terminology

• Killer bees -- Targets lawyers, P.R. team,
  business advisors hired to fight the takeover
• Strike team -- Same for aggressor
• Blitz -- Takeover strike with no notice
• Greenmail -- Legal corporate blackmail, using
  threat of takeover to force target to buy back
  aggressors shares at an inflated price

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Corporate Mergers

• Concluded Thank you
• Mike Brigner, J.D.