A BEECHMONT CREST ONLINE GUIDE
MERGERS & ACQUISITIONS
Merger Approval Process and Negotiations
Key Points:
Hostile takeovers excite the imagination and are a prominent fixture in movies such as Wall Street (1985). The truth, however, is much more mundane: most mergers are of the friendly variety.
The merger process usually begins when management representatives of the acquiring firm contact their counterparts in the target firm. A representative of an investment bank is likely involved--- even in the initial stages of contact.
Both parties will conduct a separate valuation process to determine the value of the target firm. In most cases, they arrive at different numbers. Reconciling the difference between the two valuations is a crucial part of the merger negotiations.
Companies cannot deceive shareholders and securities markets regarding the existence of merger negotiations. According to a 1988 U.S. Supreme Court decision (Basic Inc. v. Levinson), neither company can deny that ongoing merger negotiations are in fact occurring.
A merger is approved first by the board of directors of each company, and then by shareholders (unless it is a short-form merger). Once shareholders approve the deal, a document called the articles for merger or consolidation is submitted to a state official.