12.4. After the Buyer is Selected

As mentioned in Chapter 11, if the buyer is a public company that pays for the transaction with shares of its own common stock, its shareholders may have a right to vote on the transaction. A vote will be needed if the buyer’s common shares outstanding will increase by at least 20%.

Additionally, if the target’s shareholders are entitled to vote on the transaction (which, recall from Chapter 11, is most of the time), then the buyer will need to register any securities it offers as consideration. This is required for any transaction that:

• Is subject to a vote of the target’s shareholders

and

• Falls into any of the following categories:

» A reclassification or exchange that involves the substitution of one security for another security (other than a stock split, reverse stock split, or change in par value)

» A merger, consolidation, or acquisition in which securities of the corporation will become or will be exchanged for securities of another corporation

» A transfer of the corporation’s assets in exchange for the issuance of securities by another corporation, under circumstances where the original corporation will be dissolved or the securities will be distributed pro rata to the voting shareholders

SEC Rule 145

Unlike the target, the buyer does not use Schedule 14A to file a proxy statement. Instead, the SEC has arranged it so that the buyer f