240 5 Equity and Shareholders’ Capital
does not mean the merger of those companies. In practice, however, a share ex-
change is sometimes followed by a merger.
In a merger, two or more companies combine to form a single legal entity. Af-
ter the merger, only one legal entity will survive. The shares of companies that
will not survive the merger are converted into shares of the legal entity that will
survive or whatever consideration was specified in the terms of the merger.
There can be differences between mergers under Community law and US laws. This can be
illustrated by the 2008 “merger” of Bear Stearns Companies Inc. with JP Morgan Chase &
Co. Both companies were listed companies incorporated under the laws of Delaware. Their
boards agreed to merge the two companies. The merger was approved by the majority of
votes at the stockholders’ meeting of Bear Stearns. Upon completion of the merger, the
shares of Bear Stearns were converted into shares of JP Morgan Chase. Bear Stearns thus
became its wholly-owned subsidiary. The stockholders of JP Morgan Chase did not vote on
the transaction. According to Community law, the transaction would have been a share ex-
change rather than a merger. The shareholders of Bear Stears could not have been forced to
sell unless a majority shareholder had a squeeze-out right. The shareholders of JP Morgan
Chase would have had a right to decide on the issuing of new shares and the waiving of
their pre-emptive rights.
Mergers v acquisitions of substantially all corporate assets. There is also a dis-
tinction between mergers on one hand and acquisitions of all or substantially all
corporate assets on the other.
In the latter case, the seller will survive the transaction and any remuneration
will be paid to the seller rather than its shareholders. The sale of all or substan-
tially all corporate assets is therefore not governed by the same provisions as
“real” mergers.
However, the sale of all or substantially all corporate assets can have a negative
impact on the position of the seller’s shareholders and creditors. For this reason,
such transactions may be constrained by special provisions of company or securi-
ties markets laws. For example, some countries’ laws provide that such transac-
tions are decided on by the seller’s shareholders.
In Germany, shareholders vote on “fundamental matters” (Grundlagenentscheidungen) ac-
cording to the principle in the Holzmüller case.^521 In England, the Listing Rules provide
that shareholder approval must be obtained for decisions which are likely to have a major
impact on the company’s business.^522
Mergers of other legal entities. Mergers are not limited to limited-liability compa-
nies. Even other legal entities can merge. The rules that govern mergers depend on
the business form of the constituent entities. For example, the vote necessary to
accomplish a merger will vary depending on their business form. For limited-
liability companies, a qualified majority vote will suffice. For partnerships and
limited partnerships, the default rule is that a merger requires an unanimous deci-
sion by the partners.
(^521) BGHZ 83, 122.
(^522) LR 10.2.2 R and 10.5.1 R.