Mergers are a fundamental part of the business world, often making headlines as major corporations join forces. But what exactly is a merger? How does it differ from an acquisition? And what should companies consider when contemplating this significant business move?
In this blog, we’ll break down the concept of a merger, compare it with acquisitions, and outline essential considerations and legal requirements.
What is a Merger?
A merger occurs when two companies consolidate to form a new entity with a unified ownership and management structure. This process typically involves blending two companies that are similar in size and scope, making it a voluntary and mutually beneficial endeavor. Legally, they are distinct from acquisitions in that no cash changes hands. Instead, the stocks of both merging companies are surrendered, and new stocks are issued under the name of the latest business entity. This results in a dilution of each company’s individual power but can create a stronger, more competitive organization.
Despite their potential benefits, true mergers of equals are rare. It’s uncommon for two companies to find a perfect alignment of goals and to agree on sharing control. When such mergers occur, they aim to reduce operational costs, expand into new markets, and boost overall revenue and profits. The challenge lies in the willingness of the respective CEOs and management teams to relinquish some authority to realize these advantages.
Mergers vs. Acquisitions: What’s the Difference?
While the terms merger and acquisition are often used interchangeably, they represent different types of corporate strategies. A merger involves two companies joining forces to create a new entity, whereas an acquisition occurs when one company takes over another. Acquisitions, sometimes called takeovers, usually involve one company absorbing another, giving the acquirer total control over the acquired entity’s operations and management.
Acquisitions require substantial financial resources but grant the acquiring company significant power. They can be driven by the desire to purchase a supplier, improve economies of scale, increase market share, reduce costs, or gain access to new technologies without the time and expense of in-house development. Due to their often aggressive nature, acquisitions may carry a more negative connotation than mergers. Companies might label an acquisition as a merger to soften its impact.
What to Know When Considering a Merger
Several crucial factors must be considered if your company is considering a merger. They involve combining two or more companies into a single entity, which can have significant implications for both organizations. Most state laws mandate that mergers be approved by a majority of the shareholders if they substantially impact the involved companies.
For companies subject to Securities and Exchange Commission (SEC) disclosure rules, shareholders must receive detailed information, typically through a proxy statement on Schedule 14A or an information statement on Schedule 14C. These documents outline the terms and specify what shareholders will receive if the merger proceeds. Transparency and thorough communication are vital to secure shareholder approval and ensure a smooth merger process.
What Documents are Needed?
Key documents required for a successful merger include:
- Merger Agreements: Detailed contracts outlining the terms and conditions of the merger.
- Securities Offering Documents: Necessary for compliance with securities laws, detailing the issuance of new stocks.
- Disclosure Documents: Ensuring all material information is communicated to shareholders and regulatory bodies.
- Regulatory Filings: Submissions to entities such as the SEC, Financial Industry Regulatory Authority (FINRA), and the OTC Markets Group to meet legal requirements.
The Role of Your Attorney During a Merger
Legal counsel is pivotal in the merger process, providing expertise and guidance to navigate the complexities involved. Key responsibilities of your attorney include:
- Drafting Agreements: Ensuring all terms are clearly defined and legally sound.
- Preparing Private Placement Memorandums: If applicable, detailing the private sale of securities.
- Creating Disclosure Documents: Informing shareholders and regulatory bodies about the merger’s specifics.
- Registering Shares: Complying with securities registration laws.
- Ensuring Compliance: Adhering to anti-fraud laws and other regulatory requirements.
- Filing Regulatory Documents: Preparing and submitting necessary filings with the SEC, FINRA, and other relevant entities.
A seasoned attorney brings invaluable insight from both a securities and business law perspective, ensuring that all legal aspects of the merger are thoroughly addressed.
Contact Your Merger Attorney at Saltiel Law Group
If you are contemplating a merger, expert legal advice is essential. Understanding what is a merger and its implications is crucial for a smooth process. At Saltiel Law Group, we specialize in mergers and acquisitions, offering tailored guidance to meet your unique needs. Our team is well-versed in preparing the necessary documents and ensuring compliance with all regulatory requirements. Contact us at 305-735-6565 to receive professional assistance and make your merger successful.