Mergers and Acquisitions is the area of law dealing with corporate restructuring and the consolidation of companies. Sometimes the entire practice is known as mergers, acquisitions, and joint ventures. Joint ventures are included in this area because a company may desire to do business with an entity but a merger or acquisition does not make business sense. In such a case, a joint venture commits the two entities to a formal arrangement in which they create a new entity by both contributing equity and then sharing in the revenues, expenses, and control of the enterprise.

 

Companies restructure for a variety of reasons, such as to improve their financial structure, to obtain additional business opportunities, or to allow entry into new markets. Corporate mergers frequently make news headlines. This sophisticated area of practice includes various valuation methods of a company’s assets to determine the profitability of a merger or acquisition. Mergers and acquisitions are subject to regulation when the deal would result in a monopoly or reduced competition in an industry. Some of the legal issues raised in a merger or acquisition include due diligence (the investigative process that precedes an acquisition or merger), structuring the transaction, and the analysis of regulations and guidelines at the federal and state level. Of particular concern in some cases are the antitrust implications if competition is lowered or a monopoly is created through a merger.

 

A merger occurs when two companies join together to form a new company. A horizontal merger is a merger of competitors. It eliminates a competitor, increasing concentration in the market. If only a few firms remain in the market, the merger could lead to collaborative behavior among the few remaining firms, possibly leading to artificially lower output and higher prices.

 

A vertical merger unites companies that stand in the relationship of supplier and buyer. The main characteristic of a vertical merger is that the product or service offered by one firm is complimentary to the product or service produced by the other firm. It may foreclose a portion of a market because competitors of the merged buyer may be deprived of the opportunity to turn to the merged seller as a source of supply. In addition, if one of the merging parties has market power in its market, its competitors may be subjected to a price or product squeeze and may be deprived of sufficient marketing opportunities to reach or retain efficient scale.

 

A conglomerate merger is a merger of companies that are not competitors and do not stand in a buyer-supplier relationship. Most important in this category are mergers that remove significant potential competition. Firms that do business in areas related to the market may be important potential competitors, either because they produce a complementary product and might extend their line to the relevant product or because they already sell the relevant product elsewhere and might consider selling into the relevant geographic market if it were economically feasible.

 

An acquisition refers to one company’s purchase of another company. There are two types of acquisitions— stock acquisitions (the purchase of another company’s stock) or asset acquisitions (the purchase of another company’s key assets). A horizontal acquisition occurs when one company acquires another company in the same industry. A vertical acquisition occurs when one company acquires another company that is a supplier or customer of the acquiring company.

 

 In a stock acquisition, one corporation acquires all or part of the stock of another directly from the shareholders of the acquired corporation in exchange for cash, securities, or other consideration. Shareholder approval and appraisals are not normally part of a “friendly” transaction; however, if the transaction involves a hostile takeover or a majority of the controlling shares of an entity are being purchased, different regulations or statutory processes may apply and make the transaction that much more complicated.

 

An asset acquisition involves a transfer of all or substantially all the assets of the selling corporation, and the selling corporation must secure its shareholders' formal approval of the transaction. An asset acquisition is likely to be burdensome from a practical standpoint if there are many parcels of real estate to convey, or many items of personal property to assign, or if there are many creditors of the selling corporation who must be notified pursuant to the governing bulk sales statute.

 

In a consolidation, all of the participating corporations cease to exist and a new corporation is created. The assets pass to the surviving corporation by operation of law. State corporation statutes require formal shareholder approval of a consolidation although unanimous shareholder consent is not required. Dissenting shareholders are afforded the right to have their shares appraised and bought at the appraised value.

 

Mergers and acquisitions are highly structured deals, involving complex transaction documents. A mergers and acquisitions attorney provides advice about the legality of buying, selling, and combining businesses, as well as setting-up relationships between entities, such as alliances (an agreement between two or more businesses to jointly market products or services or to sell complementary products and services in the same market, sharing expenses and risk) or joint ventures (an agreement between two businesses to participate in a common enterprise, sharing profits and losses). In a merger deal or transaction, the mergers and acquisitions attorney also educates clients, counsels them on the appropriate structure of the transaction (for instance it might be better for a client to acquire the assets of an entity instead of all of its stocks to avoid certain potential liabilities), and evaluates the magnitude of any antitrust risk and the best way to proceed to minimize any such risk or tax consequences. If a merger or acquisition is not in a client’s best interests a mergers and acquisitions attorney will often recommend the two parties work out a joint venture arrangement instead.