Both federal and state laws govern corporate merger and corporate acquisition. While the state laws set out the procedures for mergers, the federal laws ensure that amalgamations do not result in the creation of dominant enterprises with monopolistic powers threatening to distort market competition.
The federal government monitors that the combined entity does not have monopolistic powers in contravention of the provisions of the Sherman Antitrust Act. Moreover, through the Williams Act the federal government ensures that any one buying more than 5% of the stocks of any company through a tender offer must make public announcement of the purchase deal disclosing of the terms of tender. Further, the purchaser must keep his tender offer open for at least 20 business days.
Under the provisions of the state laws the merger proposal must be approved by a resolution of the board of directors as well as by a resolution passed at the meeting of the shareholders of each of the merging companies separately. Thereafter the directors of those companies must file relevant papers with the state. Then the secretary of state issues a certificate of merger, which is the birth certificate of the new combined corporation.
In some states or jurisdictions, directors of corporation enjoy the liberty to abandon a merger plan at any point of time before filing of the final papers with the authorities. The laws of those states or jurisdictions with more liberal corporate jurisprudence permit an existing company to take over another corporation by merger even without shareholders’ approval, unless specifically required in the certificate of incorporation of the concerned company.
State laws have in place different provisions for protection or defense of the target company in case of attempted corporate hostile takeovers. Given the defenses available in law to the directors of the target company to fend off such hostile bids, most of the mergers are amicable or negotiated deals between the parties. These defenses can be invoked in case of unwanted corporate change of management or even against unwelcome corporate change of ownership. These defenses assume more significance in the context of corporate takeovers involving acquisition by foreign corporate investor.
