Freeze Out Mergers

In: Business and Management

Submitted By manzura
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“Squeeze Out,” ”Freeze Out” or “Two Tier” Mergers
A squeeze out merger (sometimes called a freeze out merger or two tier merger) is a strategic merger transaction that is accomplished for the purpose of eliminating unwanted minority shareholders. A squeeze out merger can be to eliminate one or more minority shareholders. It is often used after a tender offer. If the tender offeror (the “Acquiror”) becomes a majority shareholder, but does not manage to acquire 100% of the outstanding shares, the Acquiror can use the squeeze out merger to gain 100% control.
The structure of a typical squeeze out merger involving the hypothetical Target Company may look something like this: 1. NewCo Is Formed. Acquiror forms a new company, NewCo, and contributes her Target Company shares to NewCo in exchange for 100% of the stock of NewCo. As a result, Acquiror is the sole owner/shareholder of NewCo, and NewCo becomes the majority owner of Target Company. 2. Target is Merged Into NewCo. NewCo then causes the merger of Target Company with and into NewCo, with NewCo as the surviving corporation in the merger. * If NewCo owns at least 90% of Target Company, approval of the merger by the shareholders of NewCo and Target Company will not be required (a so-called “short-form” merger). * If NewCo owns less than 90% of Target Company, approval of the merger by the shareholders of NewCo and Target Company will be required (referred to as a standard or “long-form” merger). As a general rule, approval of a merger by a majority of the votes entitled to be cast. Therefore, the minority shareholder will, by definition, be unable to veto unilaterally the merger.
3. Offer to Minority: Cash or Fair Market Value. The plan of merger will be structured such that the minority shareholders of Target Company, are given cash in exchange for their shares of Target Company stock. The…...

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