21: Mergers, Acquisitions and Corporate Control21-4 MERGER AND ACQUISITION
TRANSACTION DETAILS
There are a number of ways to integrate the assets and resources of an acquired company into the
acquiring company. The following discussion describes various forms of resource integration that may be
used to combine the resources of an acquirer and a target.21-4a TYPES OF MERGERS
A statutory merger occurs when the acquirer absorbs the target’s resources directly, with no remaining
trace of the target as a separate entity. Many intrastate bank mergers in the US have been of this form.
Conversely, an acquirer may wish to maintain the identity of the target as either a separate subsidiary
or division. A subsidiary merger is often the integration vehicle when there is brand value in the name
of the target, such as the acquisition of Jaguar and Land Rover by the Tata Group. Other examples of
this may occur because of regulatory requirements. This is quite common in the Australian banking
industry. For example, because the Federal Government was concerned about a potential reduction
in industry competition, Westpac and St George Bank were allowed to merge in 2008, but only as
long as they maintained separate operations, separate products and separate brands. In a reverse triangle
merger, the acquiring company creates a subsidiary, and this subsidiary’s equity merges with the target
company’s shares. The target becomes a wholly owned subsidiary of the bidder, with the target’s legal
entity remaining intact (eliminating the need to rewrite contracts to reflect a new corporate name).
Under consolidation, both the acquirer and target disappear as separate companies and combine to
form an entirely new company with new ordinary shares. This form of integration is common in so-called
mergers of equals, where the market values of the acquirer and target are similar. Many of these new
companies adopt a name that is a hybrid of the former names, such as the 1998 global merger of Price
Waterhouse and Coopers & Lybrand to form PricewaterhouseCoopers. However, some managers of
newly created companies want a fresh start with a company name. An example of this occurred in 2000,
when the Amsterdam Stock Exchange, the Paris Bourse and the Brussels Stock Exchange merged to
form Euronext.
An acquirer can also attain control of a public corporation through a non-negotiated purchase of
the company’s shares in the open market, or by obtaining voting control of other shareholders’ shares
via a proxy contest. Theoretically, an acquirer can gain control simply through open-market purchases
of a target company’s shares, though regulation severely restricts this form of creeping acquisition in
most developed countries. Generally, an acquirer must explicitly bid for control through a tender offer
for shares. A tender offer is a structured purchase of the target’s shares in which the acquirer announces
a public offer to buy a minimum number of shares at a specific price in a cash offer directly to the
target’s shareholders. Interested shareholders may then tender their shares at the offer price. If at least
the minimum number of shares is tendered, then the acquirer buys those shares at the offer price. The
acquirer has the option to buy the shares tendered at the offer price or of cancelling the offer altogether
if the minimum number of shares are not tendered. Although fairly rare, a two-step offer occurs when
the acquirer offers to buy a certain number of shares at one price and, if the first step is successful, then
more shares in a second step at another (typically lower) price. A short-form merger occurs when the
bidder acquires substantially most of the outstanding shares. In this case, the bidder can do a short-formLO21.1
statutory merger
A target integration in which
the acquirer can absorb the
target’s resources directly
with no remaining trace of the
target as a separate entity
subsidiary merger
A merger in which the
acquirer maintains the identity
of the target as a separate
subsidiary or division
reverse triangle merger
When a subsidiary of the
bidder merges with the target
company
consolidation
A merger in which both the
acquirer and target disappear
as separate corporations,
combining to form an entirely
new corporation with new
ordinary sharestender offer
The structured purchase of
a target’s shares, in which
the acquirer announces a
public offer to buy a minimum
number of shares at a specific
price