Mergers in Delaware
If you are considering a merger that involves Delaware law, Section 251 of the Delaware General Corporation Law provides specific requirements for approving a merger.
First, the board of directors for both the acquirer and the target ,must adopt a resolution that approves the agreement of merger and declares the advisability of the merger. Section 251 stipulates a number of areas that the agreement must cover.
The agreement of merger must include the following:
-the terms and conditions of the merger;
-how such terms will take effect;
-the necessary amendments that must be made to the certificate of incorporation of the surviving corporation (or a statement that the certificate of incorporation of the surviving corporation will simply be the certificate of incorporation for the merged entity); and
-if applicable, the manner in which the shares of the target will converts into the shares or securities of the surviving corporation, whether any shares of the target company will be cancelled, and the cash, rights, or securities that the shareholders in the target company will receive.
Once the agreement and plan of merger is drafted and approved by the board of directors, the agreement is then submitted to the shareholders for a vote. The vote can be held at the annual meeting for the corporation or a special meeting called specifically for the purpose of approving the merger agreement.
In order to notify the shareholders for a special meeting to vote on the merger, all shareholders must be notified in accordance with corporation’s governance documents. However, Section 251 specifies that the shareholders must be given at least 20 days prior notice. The notice must also include either a summary of the merger agreement or the merger agreement itself. Once the meeting is held, if a majority of the shareholders vote in favor of the merger agreement, the merger is approved.
Keep in mind that Section 251 contains a number of exceptions for when a vote of the shareholders is not required. If you think one of these exceptions may apply to your situation, carefully review the requirements of such exceptions.
A recent and particularly famous illustration of the Section 251 exceptions were utilized by Google. Google successfully used the Section 251 exceptions to restructure itself into the new holding company, Alphabet, all without shareholder consent.
