Mergers and Acquisitions

       Mergers and Acquisitions are terms that are generally used synonymously but there is actually a difference between them.  The legal effects of a merger can be different than the general business definition of a merger.   Depending upon the specifics of what a company or business is trying to accomplish the company can create a triangular merger, a statutory merger, a corporate acquisition or any number of similar but in some ways different mechanisms.

       An acquisition is the term for when one company takes over another company as the new owner.  Legally in an acquisition the target company still exists as an independent legal entity.  This entity is controlled by the acquirer.

       Even though it might seem like a trivial or theoretical difference there can be huge and dramatic consequences that might not be able to be undone.  Doing the merger or acquisition correctly can prevent a “piercing of the corporate veil” or can render it meaningless, depending upon the specific facts and details of the deal and businesses involved.  It is also important to make sure that everything is in order to avoid an accusation that there is or was a violation of a fiduciary duty.

       Unlike a pure acquisition, a merger occurs when two companies sign a contract to become a single new company rather than be separately owned and operated.   In mergers the companies are typically the same size.  New stock is issued in the name of the new company and all old stock is exchanged for the new stock and becomes worthless.

       Mergers of equals are relatively rare.  More commonly, one company will buy another company and allow the purchased firm to give the public impression that there is a merger occurring.  The phrase “being bought out” is generally regarded as a negative and a corporate failure.  Daimler Benz A.G.’s “merger” with Chrysler Corporation is a typical example of a large company purchasing a smaller one and calling it a “merger” to allow the smaller company an opportunity to save face.

       Generally speaking, when a purchase is accomplished through friendly negotiation the corporate officers and directors will call it a merger.  When a purchase is done through less agreeable means, such as a hostile takeover, the term acquisition will generally be used.  The term that is actually used does not generally have an effect upon the legal consequences and it is important to make sure that there are no adverse legal consequences to the method of merger or acquisition that is used.