Following a successful tender offer, this measure is frequently used to complete a takeover without the need for a second shareholder vote.
The merger of Short Forms
If a buyer obtains less than 100% (but usually at least 90%) of a target company’s outstanding shares, the remaining minority holdings can usually be acquired through a short-form merger. A “squeeze out” is another term for this situation. The merger enables the buyer to acquire those interests without the need for a stockholder vote, allowing the buyer to purchase all of the target company’s stock and complete the takeover. Most traders, on the other hand, will have sold their target stock position to the acquirer by this stage and moved on to the next merger arbitrage investing opportunity. If this is not the case, the trader may seek dissenters’ rights, albeit this is normally just an option for experienced investors.
In a Legal Setting, a Short-Form Merger
Audra Boone says in his paper, “The Cost of Supermajority Target Shareholder Approval,”
Tender offers can be faster than typical mergers, but this advantage is only accessible if the bidder is able to complete a short-form merger after the tender, avoiding the requirement for a proxy statement and a formal shareholder vote. This structure was previously only viable if the bidder could persuade a supermajority (90%) of shareholders to engage in the tender offer.
Furthermore, in August 2013, the Delaware General Corporation Law (the DGCL) was amended to include a new code section.
It allows bidders of Delaware-incorporated targets to perform a short-form merger after attaining just 50% ownership, rather than the 90% necessary in practically all other states.
Understanding Short-Form Mergers that Work
In principle, combining (or merging) two distinct firms appears to be a simple process. Nevertheless, in almost every case, there is considerably more to the transaction than meets the eye. Every merger and acquisition (often abbreviated as M&A) has its own distinct characteristics, and its success is determined by a variety of factors. These include, among many others, appropriately finding the relevant synergies between the firms, the amount of due diligence undertaken, and ensuring that all parties are on the same page regarding the results.
Companies engage in M&As for a variety of reasons. It’s almost often for simply financial purposes, such as raising profit, purchasing assets, or expanding the market. share, or lowering risk. M&As come in a variety of shapes and sizes, including triangular, vertical, conglomerate, and market-extension mergers. Forward mergers, reverse triangular mergers, and short-form mergers are various types of mergers with different structures.
What Is a Short-Form Merger, and How Does It Work?
A short-form merger (also known as a parent-subsidiary merger) is commonly employed when an acquiring firm wants to merge with a subsidiary company. The subsidiary doesn’t have to be entirely owned by the acquiring company. The ” short-term merger” may be divided into two types:
The term “downstream” refers to when a parent firm merges with a subsidiary.
At the end of the day, any party in the deal might be deemed the merger’s survivor. However, most rules require the parent organization to possess at least 90% of the outstanding shares of the subsidiary’s stock.