USA Law and Practice Contributed by: Elena Rubinov, George Casey, Heiko Schiwek, Vinita Sithapathy, Pierre-Emmanuel Perais and Clara Pang, Linklaters LLP
Two-Step Merger (With Tender Offer) A tender offer is a direct offer to the shareholders of the target company to purchase their shares. Some target shareholders may resist tendering their shares into the tender offer. For a bidder to acquire all the shares of the target, a tender offer normally requires multiple steps, whereby, following the initial purchase of shares in the tender, the remaining shareholders of the target must be “squeezed out” through a second- step statutory merger. Because a tender offer is made directly to sharehold- ers, no target board approval is required, although most friendly tender offers are made with board approval. Most hostile transactions involve a tender offer because the acquiror can bypass the target’s board of directors and management. Nevertheless, other SEC rules require the board of directors of the target company to state its position regarding the ten- der offer. 4.4 Consideration and Minimum Price For acquisitions involving a private target, the consid- eration is often all-cash payments; however, particu- larly if a buyer is publicly traded, consideration could also consist of a mix of cash and stock, or all stock. Minimum price requirements generally do not apply in an acquisition, but certain federal securities or state corporate laws could require an acquiror to pay the same price to all the company’s shareholders. Where there is a gap regarding valuation of the target company, parties may structure the purchase price to pay a lower price for the target company upfront but make additional earn-out payments after certain busi- ness milestones are attained. Alternatively, the buyer may offer some of its stock as part of the considera- tion so target company shareholders’ pre-acquisition can indirectly benefit from the target company’s post- acquisition success. 4.5 Common Conditions for a Takeover Offer/ Tender Offer Generally, tender offers will be conditioned upon: • the tender of a minimum number of target com- pany shares;
shorter-form Schedule 13G is available to passive investors meeting certain requirements. A beneficial owner of a security includes any person who, directly or indirectly, has or shares: • the power to vote or to direct the voting of the security; or • the power to dispose or direct the disposition of the security. A Schedule 13D must be filed five business days after acquiring beneficial ownership of over 5% of the out- standing shares of a class of voting equity securities or losing Schedule 13G eligibility, and Schedule 13D amendments must be filed within two business days US federal securities laws and Delaware laws appli- cable to tender offers do not require an acquiror that obtains a given threshold of the target company’s shares to make an offer for the remaining shares of the target company. However, certain other states have adopted “control share cash-out” statutes, whereby once an acquiror obtains control, the other target company shareholders may make a demand on the acquiror to purchase their shares at a fair price. 4.3 Transaction Structures One-Step Merger A merger is a combination of two entities by opera- tion of law. The target’s shares are converted into the merger consideration (which may be cash, securi- ties or property) pursuant to a merger agreement detailing the acquisition’s terms and conditions; this is approved by the acquiror’s and target’s boards of directors and adopted by the target shareholders at a shareholders’ meeting. After the proxy process, which can take two to three months (depending on the SEC’s review and com- ments to the proxy statement; see 4.13 Securities Regulator’s or Stock Exchange Process ) and assum- ing shareholder approval, the acquiror can complete the merger fairly quickly. Typically, such transactions close on the day the shareholders approve the trans- action or the following day. after the triggering event. 4.2 Mandatory Offer
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