MERGERS & ACQUISITIONS

A merger occurs when two corporations combine their assets and operations into one corporation.  One of the corporations will survive the merger, and it is referred to as the survivor.  The other corporation is referred to as the disappearing corporation.  The survivor assumes all of the assets and liabilities of the disappearing corporation.  There are several types of mergers, for example a two-party merger, multi-party merger, triangular merger, and reverse triangular merger.

Two-Party Merger

In a two-party merger, the acquiring corporation acquires the target corporation by merging the target corporation into the acquiring corporation, which is the surviving corporation.  The shares of stock of the target corporation are converted into stock or other securities of the acquiring corporation.  Both corporations are parties to a merger agreement and are the constituent corporations.  Under ordinary circumstances, the stockholders of both the acquiring and target corporations have the right to vote on the proposed merger and both sets of stockholders may be entitled to appraisal rights.  All assets and liabilities of the target corporation become assets and liabilities, respectively, of the acquiring corporation.

Multi-Party Merger

In a multi-party merger or three-party merger, two corporations merge into a previously existing third corporation.  The two corporations are the disappearing corporations and the third corporation is the surviving corporation.  The same considerations regarding appraisal rights, stockholder votes, etc., which apply to two-party mergers, apply to three-party mergers.  The multi-party corporation can be used to acquire two or more separate corporations.

Triangular Merger

In a triangular merger, the acquiring corporation could acquire control of the target corporation without being a constituent corporation.  The acquiring corporation forms a new subsidiary into which the target corporation is merged.  The stockholders of the acquiring corporation do not have the right to vote on the merger since they are not a constituent corporation.  The stockholders of the target corporation will have the same rights as in a two-party merger. 

Reverse Triangular Merger

In a reverse triangular merger, the merger proceeds in the same manner as a triangular merger except the subsidiary is merged into the target corporation.  The outstanding shares of stock of the subsidiary, all of which are owned by the acquiring corporation, are converted into shares of stock of the target corporation.  The shares of stock of the target corporation are converted into securities of the acquiring corporation.  The advantage of this merger is that the target corporation will become a wholly-owned subsidiary of the acquiring corporation without any change in its corporate existence.