Page 16 - M & A Disputes

Asset Purchases

An asset purchase is the acquisition of a company that is consummated by purchasing a portion or all of
the assets directly from the target company itself, rather than by purchasing shares from the company
shareholders. Only assets and liabilities specifically identified in the acquisition agreement of an asset
purchase are transferred to the buyer, and any nonidentified assets and liabilities remain with the seller.
fn 3

Stock Purchases

A stock purchase is the acquisition of a company that is consummated by purchasing a controlling inter-
est of its outstanding shares directly from the company shareholders. In a stock purchase, the seller will
have no continuing interest in the assets and liabilities or operations of the target company, unless by
seller minority interest or agreement of the parties. fn 4

Merger

As previously discussed, a merger is the legal absorption of one organization or corporation that ceases
to exist into another that retains its own name and identity and that acquires the assets and liabilities of
the absorbed corporation. In a merger, companies contract directly with one another as opposed to con-
tracting with their respective shareholders. Assets and liabilities are not exchanged between the parties
to the merger. Instead, the transfer of assets and liabilities occurs by operation of law when a certificate
of merger is filed.

Mergers may take on varying forms, including the following:

 Forward merger. A forward merger is a merger in which the target merges into the buyer, and
the target shareholders exchange their stock for the agreed-upon purchase price.

 Reverse merger. A reverse merger is a merger in which the target corporation absorbs the buyer.

 Subsidiary merger. A subsidiary merger (also known as a triangular merger or forward triangular
merger) is a merger in which the target corporation is absorbed into the buyer’s subsidiary, with
the target’s shareholders receiving stock in the parent corporation. fn 5

 Reverse subsidiary merger. A reverse subsidiary merger (also known as a reverse triangular
merger) is a merger in which the buyer’s subsidiary is absorbed into the target corporation,
which becomes a new subsidiary of the acquiring corporation. fn 6

When one corporation is merged with another, and one of the two corporations operates as the combined
corporation, that company is referred to as the surviving corporation. Conversely, when two corpora-

fn 3 Modified Black’s Law Dictionary definition.

fn 4 See footnote 3.

fn 5 See footnote 2.

fn 6 See footnote 2.

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