Does It Matter If Shares Are Registered In Connection With A Merger
This is the 5th part of our Securities Law 101 series. Because capital raising is such a disquisitional function for middle market companies, we designed this series to innovate their management teams to some of the fundamental concepts in securities police force. Nosotros promise that this serial will foreclose some of the nigh common mistakes management teams make. Nosotros will periodically publish posts examining different aspects of securities law.
And so your visitor wants to utilize its stock to buy another visitor? As we have seen, stock consideration is coming back into faddy. Issuing shares of stock for mergers and acquisitions, however, triggers the need to either register the new shares with the SEC (and possibly state securities regulators) or to find an exemption from the requirements found under Section 5 of the Securities Act of 1933. The presence of these rules tin substantially increase the cost of the deal and could even make you consider going public before y'all thought possible.
For mergers, finding an exemption from registration is not usually an piece of cake task unless the target company is withal held largely by the founder. Usually, the target company'due south shareholders in the merger are often numerous, from many different states or jurisdictions, and represent a wide range of investor qualifications (accredited, sophisticated, etc.). As such, in many cases, finding a securities exemption is all but impossible. With exemptions off the table, let's look at how to register stock in a merger.
Stock that is registered in the context of a merger is registered on Form S-4. This form was specifically designed for business combinations and exchange offers. A transaction in which security holders are required to elect to receive new or dissimilar securities in exchange for their existing security (so chosen Rule 145 transactions) would qualify to utilise Course South-4.
Disclosure nether Form Southward-iv can be quite circuitous. Generally, Form Due south-4 requires full disclosure regarding both the acquiring and target companies and, if the post-merger entity will differ materially from the acquiring entity, then full disclosure with respect to the post-merger entity is also required. Form S-4s besides include the proxy argument for the shareholder meeting to approve the transaction and, typically, combine this proxy with the prospectus. Form South-four mandates extensive disclosure of the transaction in the prospectus/proxy argument, including any fairness opinions and a comparison of the rights of the shareholders of the parties to the transaction. Essentially, the disclosures are tailored to the specific transaction and nuances in the deal tin create the demand for a lot of disclosure. Notably, for some companies, (due east.g., anest United Bancorp, Inc.) registration via Course S-four has served as the avenue of "going public." For companies that are already public, there is also the possibility of registering securities long before a deal or several similar deals are on the table by means of a shelf registration.
Once a registration statement is filed with respect to a security, numerous other aspects of the Securities Act utilise. For example, the gun jumping and publicity rules nether Section 5 of the Securities Act are now applicable. Furthermore, Sections 11 and 12(a)(two) of the Securities Act (imposing liability for statements fabricated in the registration argument and prospectus, respectively), employ likewise, both of which are more generous to plaintiffs than the Commutation Act of 1934'southward Rule 10b-5 or common law fraud. Yous also demand to consider whether the target'southward shareholders will be able to resell their securities. Substantially then, the parties to a merger transaction must take into account all securities constabulary implications associated with using stock and/or securities to consequence the transaction, weighing the costs and benefits of registering the relevant securities, or seeking an exemption from registration.
On height of the federal requirements, there are also state specific requirements for registered offerings in a merger. Many states have their ain registration requirements that must be considered and complied with. Thus, a registered deal has a lot more issues involved and needs more analysis and fourth dimension to complete. Still, the power to use stock that may have climbed in value and may be trading at a multiple of book value is potentially very positive for making a deal happen. Bargain makers should make sure to consider the possibility of using stock as a currency.
Does It Matter If Shares Are Registered In Connection With A Merger,
Source: https://www.thesecuritiesedge.com/2013/05/securities-law-101-part-v-issuing-shares-of-stock-for-mergers-and-acquisitions/
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