11.2 Structures 395Ease of transferring control. The role of shareholders is a key to how easy or dif-
ficult it is to obtain control over the target.
- Mergers are legally clear ways of transferring control because control is then
transferred by operation of law. On the other hand, the procedure is time-
consuming because of the statutory protection of shareholders and third parties. - A share sale is less time-consuming, because the target company remains in
existence and there are fewer rules protecting shareholders and third parties.
Furthermore, control can be obtained without buying all shares of the target.
This can reduce costs. However, it may be more difficult to obtain full control
of the target. All shareholders may not be willing to sell their shares, and mino-
rity shareholders can use the remedies available to them in order to block deci-
sions. Squeeze-out rights will not be available unless the holdings of the acqui-
rer exceed a certain threshold. - An asset sale is less time-consuming than a merger. In this case, the target’s
shareholders will not be a contract party. However, the acquirer cannot just buy
majority control over a company’s assets. This can increase costs compared
with the purchase of a controlling block of shares.
Ease of passing consideration. The target’s shareholders may prefer structures that
give them direct access to consideration.
- In a merger or share sale, the consideration passes directly to the target’s share-
holders. The target’s shareholders can thus prefer this option. - In an asset sale, however, they are neither party to the contract nor entitled to
consideration. This means that the target’s board obtains more discretion. The
seller can, for example, invest the consideration in other business ventures. Ge-
nerally, the process of distributing the consideration to the seller’s shareholders
becomes more complicated in this case. For example, the seller can distribute
the consideration as a dividend to its shareholders or be liquidated.
Ease of transferring assets. The acquirer may prefer structures that give easy ac-
cess to the target company’s assets.
- In a merger, title to all assets owned by each constituent corporation is automa-
tically vested in the surviving corporation. - In a share sale, title to the shares of the target company is transferred to the ac-
quirer. It is easy to identify what is being bought and sold. However, the assets
will still belong to the target company. - In an asset sale, it is necessary to identify each and every asset being bought
and sold, and to prepare documents of transfer with respect to each and every of
them. - Anti-assignment clauses and change of control clauses influence different struc-
tures in different ways.