Minisoft Corporation and Pear, Inc. are the two largest computer companies in th
ID: 2718313 • Letter: M
Question
Minisoft Corporation and Pear, Inc. are the two largest computer companies in the United States. Pending Department of Justice antitrust review, the two corporations plan to merge, renaming their company “Mini-Pear, Inc.”. As an integral part of the merge, existing shareholders of Minisoft Corporation and Pear, Inc. will be offered an even “stock swap”. Per the terms of the proposed trade, current shareholders of Minisoft Corporation and Pear, Inc. will exchange share of their company’s stock for (1) share of Mini-Pear, Inc. stock. A few shareholders of both Minisoft Corporation and Pear, Inc. do not approve of the terms of the proposed merger, nor do they approve the merger itself. The vast majority of the shareholders of the companies approve the merger.
Question (1)
What is the process that must be taking in a corporation in order to take a decision to merge with another corporation? And whose approvals must be considered? Explain in details.
Question (2)
What rights do the minority shareholders have, either in terms of blocking the merger, or in terms of estimating the fair value of their existing shares?
Explanation / Answer
Question 1)
The process to merge one corporation with the another starts with the identification of potential benefits/synergies that may be derived from the proposed merger. After the benefits have been deteremined and the decision to merge has been finalized by the management, it becomes important to communicate the decision to merge to the internal (employees) and external (investors, creditors, etc.) stakeholders of the company.
A merger, however, cannot simply be initiated at the discretion of the management of any of the 2 companies. Without obtaining approval of the majority shareholders of the company, a merger cannot take place. Such an approval is required to be taken by both the companies deciding to merge with each other. The percentage of majority sharholders will vary with the state in which the companies (under consideration) have been incorporated. In the given case, it has been clearly mentioned that "Vast" majority of the shareholders of both the companies have approved the merger. Therefore, it can be concluded that the step requiring shareholder's approval has been completed by both the companies.
___________
Question 2)
As per the relevant laws, any shareholder who doesn't approve of the merger or gives his/her consent for the merger, is in no way obligated to accept the shares of the merged corporation. They are, however, entitled to "Appraisal Rights". This right is given to the dissenting shareholders by the state law and entitles these shareholders (in the pre-merged corporations) to get their shares "Appraised" or be paid at the "Fair Value" by the company of which the shares are being held.