Second Edition
Copyright © 2017 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
The first edition of Mergers and Acquisitions was published by John Wiley & Sons, Inc. in 2008.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Names: Miller, Edwin L., author. | Segall, Lewis N., 1970– author.
Title: Mergers and acquisitions : a step-by-step legal and practical guide +website / Edwin L. Miller, Jr., Lewis N. Segall.
Description: Second edition. | Hoboken, New Jersey : Wiley, 2017. | Series: Wiley finance | Includes index.
Identifiers: LCCN 2016051178 (print) | LCCN 2016051981 (ebook) | ISBN 9781119265412 (hardback) | ISBN 9781119276753 (pdf) | ISBN 9781119276777 (epub)
Subjects: LCSH: Consolidation and merger of corporations—Law and legislation—United States. | BISAC: LAW / Mergers & Acquisitions. | BUSINESS & ECONOMICS / Mergers & Acquisitions.
Classification: LCC KF1477 .M55 2017 (print) | LCC KF1477 (ebook) | DDC 346.73/06626—dc23
LC record available at https://lccn.loc.gov/2016051178
Cover Design: Wiley
Cover Images: (top) © fztommy/Shutterstock;
(bottom) © zffoto/Shutterstock;
© Dmitri Mikitenko/Shutterstock
From Ed:
I dedicate this book to my family—my extraordinarily tolerant and supportive wife, Barbara; my son, Russ, who beat me at chess at age 5; and my daughter, Lindsay, who was one of 150 admitted to her medical school out of 11,000 applicants.
From Lew:
I also dedicate this book to my family, who could be an excellent law firm in their own right one day—my wife, Christian, the best nonpracticing lawyer I know; Garnett (8), the advocate; Sawyer Jane (12), the negotiator; and Harper (13), the mediator. And Birdie, our Cavalier King Charles, who keeps us all on our toes.
Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding.
The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisers. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and financial instrument analysis, as well as much more.
For a list of available titles, visit our website at www.WileyFinance.com.
This book attempts to convey a working knowledge of the principal business terms, customary contractual provisions, legal background, and how‐tos applicable to business acquisitions. It is not meant to be either a traditional law text or a purely business book, but combines elements of both.
Entrepreneurs and other business professionals should have a working knowledge of the legal basics of their deals. The best business lawyers counsel their clients not only on the legal framework of a transaction but also on the interplay between legal concepts and business terms. In a sense, there is no distinction between them.
Our hope is that reading these materials will benefit business owners and managers who want to understand more deeply the acquisition process and the major corporate, tax, securities law, and other legal parameters of business acquisitions; lawyers who would like to know, or need a refresher on, what they should be discussing with clients who are either buying or selling a business; and law or business school students who want to learn the legal and business fundamentals of acquisitions, and who also want to get a jump on real‐world acquisition practice. Each chapter consists of commentary on what's really going on in typical situations at each stage, and an in‐depth discussion on the particular subject. The appendixes include model or sample documents for a number of common transactions, as well as additional materials. (Appendixes can be found on the Web. See “About the Website.”)
More specifically, this book attempts to do three things. The first is to survey and explain the principal legal factors that affect the feasibility and economic consequences of acquisitions. Almost all transactions are feasible in the sense that it is legally possible to do them. One rare exception would be blockage by the antitrust authorities. It is also true that acquisitions usually can be structured and implemented in a number of different ways. Different structures have different economic consequences to the parties that might not be initially apparent. The business lawyer and other deal professionals (investment bankers as well as business development and other personnel) must devise different structures and implementation schemes and analyze the economic consequences of each. Along with factors that are purely economic, like whether a transaction is taxable, the risks involved in various approaches also must be analyzed and explained.
Given a particular structure, the economic consequences and risks of a particular transaction are affected by what is called the private ordering of the transaction. That means that the business and legal terms of a transaction can be incorporated into applicable legal documents (e.g., a merger agreement) in a wide variety of ways. The experienced deal professional will know the alternatives and, as negotiator, will have the task of getting the other side to agree to as many provisions as possible that are favorable to the client.
Lastly, we discuss some of the policy implications of various rules and cases, along with some of the academic theory behind them. This information is not of great practical value, and not much time is spent on it. Most academic textbooks and the press spend a hugely disproportionate amount of time on the blockbuster deals of the day. Legal practitioners spend huge amounts of time trying to make sense out of the latest Delaware takeover case (to the extent that is possible). That is all interesting and important to know, but these cutting‐edge tactics and theories have little application to the large majority of merger and acquisition (M&A) transactions. Public and private deals differ in many respects. Also, in many ways, the business and legal terms in these large public transactions tend to be less variable—there is no time for the deal professionals to fiddle around, and the incremental value of an improvement in terms may be miniscule compared to the value of the deal. We do not ignore these issues, but our larger intent is to prepare the reader in greater depth for the acquisitions that make up the large majority of transactions.
So, going back to regulatory and other legal factors, what is the basic mental legal checklist that a deal professional should run through when presented with a particular transaction? The principal structuring parameters are:
We explore each of these factors in detail.
Different types of acquisition transactions have very different legal parameters. The basic types of acquisition transactions are:
We will discuss the sequence of the various steps in acquisition transactions and the seller and buyer's perspectives and interests at each step. For each step, we will also analyze in detail the various documents that are used to effect the transaction.
We will call the company that is being acquired the Target because it may not be the actual seller—in a stock acquisition, it is the Target's shareholders who are selling their stock to the acquirer, or the Buyer. In acquisitions, Buyers often use subsidiaries as the acquisition vehicle. We will not generally make that distinction unless it is relevant, and it is often relevant for tax purposes. We also assume for simplicity that, unless otherwise noted, the Buyer and the Target are both Delaware business corporations.
Comments and questions are welcome. If you have any comments or questions, feel free to contact us at edwinlmiller@gmail.com or lewsegall@gmail.com.
A number of our colleagues at Sullivan & Worcester contributed to this book.
In particular, Chapter 4 on tax was substantially rewritten from Ed's original draft by Jonathan Dubitsky; and the sections in Chapter 7 on fraudulent conveyances and bankruptcy were written by Pat Dinardo and Pam Holleman. Rick Mastrocola and Kathy Rizzo of Tonneson & Co. provided valuable feedback on the accounting sections in Chapter 3.
Other colleagues who were kind enough to review parts of the book were Jay Abbott, Zach Altman, Shy Baranov, Harvey Bines, Sam Bombaugh, Bob Buchanan, Chuck Charpentier, Bill Curry, Paul Decker, Lee Dunham, Steve Eichel, Adam Gopin, David Guadagnoli, Will Hanson, Vivian Hunter, Andrea Matos, Neil McLaughlin, Chris McWhinney, Laura Miller, Tricia Wall Mundy, Adriana Rojas, Ryan Rosenblatt, George Selmont, Amy Sheridan, Walt Van Buskirk, Carol Wolff, Chelsea Wood, and Amy Zuccarello.
Nevertheless, the views expressed herein are our own and do not necessarily reflect the views of others at our firm. We are solely responsible for the contents of this book.