Last Updated on December 17, 2022 by Anda Malescu
In the United States, much of the modern law of mergers and acquisitions was made during the 1980s and is a product of particular market conditions and motivations of buyers.
From the end of World War II until the late 1970s, much of American industry was insulated from global competition
The U.S. had the largest common market, and many American companies felt content to concentrate on business within the U.S. The 1960s and 1970s witnessed the growth of the so-called conglomerate firms. Growth through acquisition of competitors. Growth through acquisition of competitors became problematic under stricter enforcement of the antitrust laws in the 1950s and 1960s. Even acquiring suppliers or customer was difficult under these laws.
As foreign economies recovered from the devastation of World War II, their industries, often rebuilt with U.S. aid became strong competitors on a global scale. Aging U.S. steel plants, with high-wage workers, were unable to compete with much more modern plants, often in developing economies. With the end of the 1970s came the development of a new acquisition technique and a new financial market.
By the 1980s the hostile takeover had become commonplace
While financing acquisitions was not a challenging problem for larger companies, the development of the junk bond market opened new opportunities. The other mode of acquisition that developed was the “leveraged buyout,” where buyers would use huge amounts of borrowed funds to purchase control of public companies at a premium. The use of high yield securities and leveraged buyouts underwent a sharp decline during the 1990s as a result of regulatory changes.
Today, in the field of mergers and acquisitions, the vast majority of all acquisitions are negotiated transactions, usually between top executives of two companies, with board authorization followed by shareholder approval.
Mergers involve corporate action, rather than the individual actions that are at the heart of acquisitions. In the typical conception of a merger, corporation A, by virtue of corporate action becomes part of Corporation B, the surviving corporation, which also must undertake similar corporate action. The shareholders of Corporation A, by operation of law, become shareholders of Corporation B, as a result of the merger. Corporation A disappeared by operation of merger laws, and in its place stands only Corporation B. Corporation B succeeds to the legal title to all assets of Corporation A and inherited all of its obligations as well.
The corporation statues in each U.S. state spell out the procedure for such mergers and acquisitions in detail
First, the board of directors of the merging corporations must approve an agreed-upon plan of merger. After giving sufficient advance notice as required by the statute, the shareholders must approve the plan of merger. If they do so, and if the merger is not abandoned by the board of directors, a power reserved in virtually all statutes, the merger is consummated upon making required filings with the appropriate state authority, usually the Secretary of State. While Corporation A shareholders may continue to hold their stock certificates that state that they own shares in Corporation A, by operation of law they now own shares in Corporation B.
Mergers and acquisitions involve a great deal of critical business, legal, financial and deal negotiation issues. Contact us or schedule a consultation with your international business attorney in Miami, Florida USA to assist you with mergers and acquisition transactions.
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