What Is a Merger in Company Law

For example, in 1998, the American car manufacturer Chrysler Corp. merged with the German car manufacturer Daimler Benz to form DaimlerChrysler. This had all the prerequisites for a merger on an equal footing, as the presidents of the two organizations became common leaders in the new organization. The merger was seen as very beneficial for both companies, as it gave Chrysler the opportunity to reach more European markets, and Daimler Benz would gain a greater presence in North America. An upstream merger between a parent company and a subsidiary is a merger of a subsidiary with its parent company, the surviving parent company. Ambev merged with Interbrew, uniting the three and five largest breweries in the world. When Ambev and Anheuser-Busch merged, they brought together the world`s first and two largest breweries. This example represents both horizontal merger and market expansion, as it was an industry consolidation, but also expanded the international reach of all the brands of the merged company. In cases where companies have little in common, it can be difficult to achieve synergies. In addition, a large company may not be able to motivate employees and achieve the same level of control. As a result, the new company may not be able to achieve economies of scale. Any merger may be carried out in accordance with the general articles of association of mergers, although certain types of mergers or specific types of mergers are applicable. Shareholders of the non-surviving corporation generally retain shares of the surviving corporation.

If both of the above criteria are met, an abbreviated merger is allowed. What an abridged merger of the parent company allows is to merge the subsidiary itself – consolidating all its financial statements, legal rights and business activities – without the vote of the remaining shareholders of the subsidiary. The premise behind the abbreviated merger is that the parent company owns such a high percentage of the subsidiary that it has control of the subsidiary. The remaining shareholders of the subsidiary hold their shares and fight against the sale just to get more money before the sale, or they are simply not interested in the transaction. First, you can expect each state to require the approval of the board of directors of the “target company” (the one that will not survive a merger). In fact, it is the board of directors that recommends the merger and creates a so-called “certificate of merger”. In addition, it will be the board of directors that will negotiate the terms of the merger with the acquiring company. Once the Board of Directors has completed negotiations and the terms of the agreement have been determined, the Board of Directors will recommend the transaction to shareholders. See 8 Del.C. § 251. Since this is a legal transaction, the requirements of the laws on the commercial bodies of the founding States of the parties must be followed for the merger to become legally effective.

In addition to a standard merger, many states allow an “abbreviated merger.” A short-term merger takes place in the case of a parent company that merges with its own subsidiary. The parent company must usually hold an extremely large stake in the subsidiary – a typical requirement is that the parent company owns 80% or 90% of each class of shares issued by the subsidiary. See Code of Ala. § 10-2B-11.04. Due to a large number of mergers, an investment fund has been created that gives investors the opportunity to profit from mergers. The fund enters the difference or amount that remains between the offer price and the trading price. The Westchester Capital Funds merger fund has been in existence since 1989. The fund invests in companies that have publicly announced a merger or acquisition. To invest in the fund, a minimum amount of $2,000 is required, with an expense ratio of 2.01%. The Fund has reached 6.1% per year since its inception in 1989, as of April 29, 2020.

This type of merger takes place between companies that sell the same products but compete in different markets. Companies participating in a market expansion merger are trying to access a larger market and therefore a wider customer base. To expand their markets, Eagle Bancshares and RBC Centura merged in 2002. Mergers are most often carried out to gain market share, reduce operating costs, expand into new territories, unite common products, increase sales and increase profits – all this should benefit corporate shareholders. Following a merger, the shares of the new company will be distributed to the existing shareholders of the two parent companies. The merger process involves two companies – for our purposes, we will call them A Corp. and B Corp. As part of a merger transaction, A Corp. and B Corp. will merge, so that only one company will “survive” the transaction (for example, .B the new company may still be called A Corp.

The surviving company (A Corp.) now owns and is burdened with all the rights, benefits, obligations and burdens of A Corp. and B Corp. Thus, the merged company (the new A Corp.), although probably larger and stronger due to the merger, also faces the problem that it is now responsible for all the legal obligations of the now defunct company (B Corp.). The advantages of a short merger with the parent company are obvious. First, the abbreviated merger saves the parent company the huge costs that may be required to obtain proxies or votes from the few outstanding shareholders. In addition, the process can be completed quickly, as only a vote of the parent company`s board of directors and a submission to the state are required. The requirements for the abridged merger vary from state to state, but the common denominator is that the merger will certainly be easier than a merger between two independent companies. See Cal Corp § 1110. The largest mergers in history amounted to more than $100 billion. In 2000, Vodafone acquired Mannesmann for $181 billion to create the world`s largest mobile phone company.

In 2000, AOL and Time Warner merged vertically into a $164 million deal that is considered one of the biggest flops of all time. In 2014, Verizon Communications bought Vodafone`s 45% stake in Vodafone Wireless for $130 billion. A merger is the voluntary merger of two companies on broadly equal terms to form a new legal entity. The companies that accept a merger are about the same in terms of size, customers and scope of operations. For this reason, the term “fusion of equals” is sometimes used. Acquisitions, as opposed to mergers, or usually non-voluntary and involve one company actively buying another. A takeover or acquisition, on the other hand, is characterized by the purchase of a small business by a much larger company. This combination of “inequality” may bring the same benefits as a merger, but it doesn`t have to be a consensual decision.

General partnership (GP), limited liability company (LP) (and other companies that may be involved in the merger) A merger is the voluntary merger of two companies on broadly equal terms to form a new legal entity. A merger is a combination of two or more business units in which the assets and liabilities of all companies are transferred to one that persists while all the others cease to exist. Inventory, equipment, inventory and devices are tangible assets that can be transferred, while intangible assets can be goodwill, name or patents. A congener fusion is also known as a product extension merge. This type is a combination of two or more companies operating in the same market or sector, with overlapping factors such as technology, marketing, production processes, and research and development (R&D). A product expansion merger is achieved when a new product line from one company is added to an existing product line from the other company. If two companies become one in the expansion of a product, they may have access to a larger group of consumers and thus to a larger market share. An example of a general merger is the merger of Citigroup in 1998 with Travelers Insurance, two companies with complementary products. However, keep in mind that just because a pair of companies merge through a short merger (as opposed to a regular merger) does not mean the legal rights or obligations of the parent company. The parent company will continue to assume all benefits and obligations – including all elements of civil liability – associated with the now merged subsidiary. When the companies merge, the new company gains a larger market share and wins in the competition.

In the event of a merger, the target company merges with the acquirer in a transaction carried out in accordance with the general articles of association of the merger. This type of merger is general in that it is not specific and can potentially apply to all mergers. In an aggressive merger, one company may choose to eliminate the underperforming assets of the other company. This can cause employees to lose their jobs. Mergers can save a company from bankruptcy and also save many jobs. Three business units are involved in a triangular merger: a parent company (the acquirer), its subsidiary and the entity to be acquired (the target). .