11.2 Structures 397Triangular transactions. One of the usual ways to combine the advantages of dif-
ferent structures is through the choice of a triangular structure.^10 It is characteristic
of a triangular merger that the acquiring company sets up a shell subsidiary.
When the acquisition is structured as the purchase of shares for a cash consid-
eration, the shell is capitalised with the consideration to be paid to the target com-
pany’s shareholders. The target company’s shareholders are bought out for cash.
After the purchase of the target’s shares, the shell is merged with the target com-
pany. As a result, the target firm ends up as a wholly-owned subsidiary of the ac-
quirer.
Alternatively, the target company can subscribe for shares issued by the shell
company in exchange for the transfer of the target’s assets to the shell company,
or the target company’s shareholders can subscribe for shares issued by the shell
company in exchange for shares of the target company. In both cases, the shell
company will get new shareholders.
Financial investors typically use a shell acquisition vehicle, because it will en-
able them to avoid any direct recourse against their funds and to facilitate the fi-
nancing structure.^11 Triangular structures are typically used in takeovers by pri-
vate-equity firms (section 10.5). A triangular structure can also help to simplify
the acquirer’s own corporate decision-making.
Triangular structures are not used when the acquiring company pays for the ac-
quisition by issuing its own shares in exchange for shares or assets.
Mergers of equals. “Mergers of equals” are governed by the same provisions of
EU company law as mergers in general (section 5.11.4) but differ from custom-
mary acquisitions in takeover practice.^12
In a customary acquisition, the vendor or vendors expect the acquirer to pay a
control premium. If control is shared between the parties, neither party can expect
a control premium. In a merger of equals, the exchange ratio is typically set to re-
flect the relative asset, earnings, and capital contributions of the participating
companies as well well as their market capitalisations if their shares have been
admitted to trading on a regulated market.
A merger of equals structure can bring many benefits to the firm. (a) Such
transactions are less costly than high premium acquisitions. They are therefore an
alternative for smaller companies that would not otherwise have the financial ca-
pability to launch a large-scale expansion programme, and they have been usual in
banking. For example, Citigroup grew by a series of acquisitions - in particular,
the $140 billion merger of Citicorp and Travelers in 1998. (b) In industries with
few acquisition targets, mergers of equals often represent the only effective ave-
nue available to would-be acquirers for a large scale expansion. (c) In addition,
mergers of equals can be an alternative where the shareholders of both companies
(^10) Bainbridge SM, Mergers and Acquisitions. Foundation Press, New York (2003) pp 161–
162.
(^11) Goldberg L, Acquisition Agreements from a Business Perspective (Principal Focus: Pri-
vate Company Acquisition for Cash). In: PLI, Doing Deals 2008: Understanding the
Nuts & Bolts of Transactional Practice, Corporate Law and Practice Course Handbook
Series. New York City (2008) pp 213–214.
(^12) For US law, see Cole J Jr, Kirman I, op cit, pp 147–158.