Merger Arbitrage, 2nd Edition

Chapter 6Deal Structures: Mergers and Tender Offers

The preceding chapters mostly ignored the structure of the deal. When the timing of the closing of a merger was discussed, I alluded briefly to the difference in speed with which tender offers or mergers are completed. Differences between tender offers and mergers run deeper, and this chapter describes the structure of mergers in more detail.

A merger is a structure where two companies are integrated into a single entity. The buyer is normally the surviving corporation, and the target ceases to exist as it is integrated into the buyer. Target shareholders receive cash, stock of the acquirer, or a mix of both. The acquirer buys the target firm directly.

In contrast, in a tender offer, the acquirer buys the shares of the target firm from the target's shareholders. Therefore, a second step is needed to complete the transaction: a merger in which the target is merged into the acquirer.

Both structures, mergers and tender offers, are used in all major jurisdictions, although their names in specific implementations vary. Table 6.1 shows the nomenclature for various countries. In Canada, statutory mergers are called amalgamations, whereas a scheme of arrangement is a plan of arrangement. Despite the linguistic differences, both are mergers. Table 6.1 shows which types of transactions are available in different common law jurisdictions.

Table 6.1 Mergers and Tender offers in several common law jurisdictions

Canada

UK

Australia ...