11.2.2.2. Merger Structures
Recall from Chapter 1 that a merger is a combination of two companies in which one or both cease to exist as a separate legal entity. Mergers are governed by the laws of the states in which the merging corporations are incorporated. In most cases, a merger must be approved by the boards of directors and the shareholders of both companies.
The most common type of merger is one in which the acquiring company exchanges its shares for shares of the target company, or pays cash, notes, or other consideration for the target company’s shares. In either case, the buyer acquires 100% of the target company. The target company then loses its independent identity and “merges” into the buyer. The buyer usually retains its existence as the surviving entity. This kind of merger is sometimes called a one-step merger, a direct merger, or a forward merger.
A forward triangular merger is a merger in which a subsidiary of the buyer, instead of the buyer itself, is the entity that acquires the target, and the target ceases to exist as an independent entity. (This kind of merger is “triangular” because three entities are involved.) In a reverse triangular merger, the buyer likewise forms a subsidiary, but the subsidiary is merged into the target. The subsidiary cea