Mergers—A Brief Overview for Shareholders

Mergers can be among the most complicated of all business transactions.  However, in simplest terms, a merger combines two or more companies into a single business entity.  For example, one corporation might pay a second corporation to acquire all of the second corporation’s assets and liabilities; in the process, the second corporation would effectively become part of the first corporation, and otherwise cease to exist.

Where mergers are likely to have a substantial impact on at least one of the companies involved, most states require that at least a simple majority of the shareholders of each company vote to approve the merger.  Each of the companies involved will call a shareholder meeting for this purpose.

However, before matters reach the voting stage, many corporations are required by federal law to provide their shareholders with a statement disclosing important information about the merger; depending on the details, this document is technically known as either a “proxy statement” or “information statement.”  (Note:  There are various documents sent to shareholders that are called proxy statements, and not all of them specifically relate to mergers; for example, proxy statements are also sent to shareholders in advance of annual shareholder meetings.)

The proxy statement or information statement will lay out the terms and conditions of the merger—including telling you, the shareholder, what you will receive if the merger is completed.  If you feel that you will not receive a fair amount from the merger, you likely will have certain rights under state law to object.  These rights are known variously as appraisal rights and dissenter’s rights.  The statement you receive from the corporation should provide information about the procedures for asserting these rights.  You should follow these procedures carefully; otherwise, you may lose your right to object.

Tip:  You can view and download proxy statements and information statements using the online EDGAR database maintained by the Securities and Exchange Commission (SEC).

Finally, apart from requirements under federal law, most states have laws that require merging corporations to provide a copy of the proposed merger agreement (sometimes called a “plan of merger”) to their shareholders prior to the vote to approve the merger.  Like a proxy or information statement, a merger agreement or plan of merger must disclose the terms of the merger, including how your shares will be converted into other securities or cash.