Mergers, Acquisitions, and IPOs

AuthorBert Spector
ProfessionProfessor of Strategy at Northeastern University
Mergers, Acquisitions, and IPOs 119
Mergers and acquisitions (M&As) and initial public offerings (IPOs) are
among the most significant, complex, and legally dense transac tions in
which corporations engage. At every step of the process, counsel plays a
vital role: conducting due diligence, structuring deals, representing the cor-
porate client in negotiations among the numerous parties, and ensuring
compliance with prevailing laws and regulations. M&A transactions quite
often lead to follow-up litigation, including shareholder suits. Individual
lawyers and firms ca n make their reputations on M&A and IPO expertise.
Even in times when the pace of such large transactions slows, billings pro-
vide an important source of revenue for firms.
Prior to becoming immersed in the complexity of these transactions, it
is useful to take a step back. M& A and IPOs are critical elements of corpo-
rate strategy. Decisions to acquire a new business or to transform from a
private to a public corporation will have a significant impact on the future
competitiveness of the company.
120 Mergers, Acquisitions, and IPOs
The Role of Mergers and Acquisitions
Executives use the terms “merger” and “acquisition” interchangeably, typi-
cally as a single phrase: M&A. For most of the chapter, I will follow that
managerial practice. It is, however, important to recognize that, as defi ned
by state law and regulated by the SEC, there are distinctions between merg-
ers and acquisitions. Counsel will be needed to help construct the transac-
tion to meet the needs and obligations of the involved parties.
The SEC defines a merger as a transaction that combines two or more
corporations into a single entity. Most states require that a merger be
approved by at least a majority of the shareholders of the involved corpora-
tions. The result of a merger between corporations is that the surviving
entity assumes all of the liabilities and obligations of the entity (or entities)
that cease to exist.
Corporate executives may wish to avoid the shareholder vote required
of a merger. Shareholder votes typically ta ke months to organize and run.
In addition, there may be a risk of a shareholder battle over a particular
transaction. In that case, the corporation may instead pursue an acqu isi-
tion, which does not require approval of either company’s shareholders.
The acquiring company, known as the “bidder,” may purchase assets—
real estate, machinery, inventory, intellectual property, and so on—of the
acquired company, known as the “target,” without purchasing any of the
target’s stock. An acquisition may also involve the purchase of the target’s
stock without the assumption of the target’s liabilities. The statutes, court
rulings, and SEC reg ulations that establish the requirements of share-
holder approval are complex and can vary from state to state. A lthough the
distinctions between how a merger or
an acquisition can proceed are sig nifi-
cant, the end result remains largely the
same. The target ceases to ex ist as an
independent entity and the bidder now
controls the expanded corporation.
Bidders will be attracted to poten-
tial targets when they are under-
valued. Assigning a va luation to a
potential acquisition is a complex mat-
ter. One common approach involves
In a merger, only one corporation
is designated to be the surviving
entity. That surviving entity assumes
all property, contract rights, and
liabilities of the non-surviving firm.
The name of the resulting entity may
be substituted in any legal proceed-
ing undertaken by the non-surviving
entity. In an acquisition, the bidder
and target will negotiate the disposi-
tion of liabilities.
Point of Order

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