DGCL Sec. 251(h) Makes “Two-Step” Mergers Easier to Complete

While not necessarily “breaking news” at this point, as of August 1, 2013, the Delaware General Corporation Law was amended to make two-step mergers—tender offers with back-end mergers—easier to complete. Pursuant to new § 251(h), third-party acquirors and targets may enter into merger agreements that specifically opt in to this statute and will allow the acquiror to complete the second-stage merger without a shareholder vote if the acquiror obtains a sufficient number of shares in the opening tender offer (usually more than 50%) that its vote alone would be sufficient to approve the merger.

Prior to the enactment of this statute, parties to two-step merger transactions were often forced to either obtain 90% of the shares in the tender offer (in order to use the “short-form” statute) or use a “top-up” option to avoid the more cumbersome—and expensive—long-form merger on the back end of the transaction.

Three points are important to remember: (1) this statute may only be used in transactions between a non-affiliated or non-interested, third-party stockholders and a target with shares listed on a national exchange or held by more than 2000 stockholders; (2) this is an “opt in” statute, so the merger agreement must cite its applicability; and (3) no matter what the type of consideration (cash, shares of a publicly-traded company, etc.), the merger is subject to appraisal rights.

Tender offers seem to have fallen off in popularity in recent years, but with this amendment to the DGCL, we would expect to see acquirors using them with more frequency.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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