When companies pursue mergers or acquisitions in Texas, they must navigate a range of state and federal laws. Directors and officers owe important fiduciary duties during these complex transactions. Shareholders dissenting from deals may demand appraisal of their shares. And larger combinations will likely undergo antitrust review.
Fiduciary Responsibilities in M&A Deals
Directors and officers owe fiduciary duties of care, loyalty, and good faith to the corporation and its shareholders. This means they must act in the company's best interests when considering and implementing mergers or acquisitions. Self-dealing transactions that benefit directors or officers personally face especially close legal scrutiny. Directors have a duty to be reasonably informed about potential deals based on information and guidance provided by management. Controlling shareholders who are freezing out minority shareholders in a merger also owe fiduciary obligations, and the transaction will be reviewed under the entire fairness standard.
Appraisal Rights for Dissenting Shareholders
Under Texas law, shareholders who oppose certain mergers and other transactions have the right to dissent and demand appraisal and fair value compensation for their shares. To perfect these appraisal rights, shareholders must strictly comply with all statutory requirements. This includes providing written objection to the merger before the shareholder vote occurs, not voting in favor of the merger, and making a written demand for payment within a specified timeframe after the merger takes effect. If the company and the dissenter cannot agree on fair value, the dispute will go to court, where valuation experts will provide financial analysis to assist the court in determining a fair price.
Antitrust Review of Major Deals
Larger mergers and acquisitions may require antitrust approval under the Hart-Scott-Rodino Act. The Federal Trade Commission and Department of Justice will review deals above certain size thresholds to determine whether they will harm competition substantially by increasing prices, decreasing output, or other anti-competitive effects. The agencies can negotiate remedies with the companies to address particular competition concerns, such as requiring divestitures or imposing conduct requirements.
Requirements for Merger Transactions
The Texas Business Organizations Code imposes specific requirements for accomplishing corporate mergers. The board of directors and shareholders must approve the merger, often by a supermajority vote specified in the articles of incorporation. The companies must file Articles of Merger with the Secretary of State that include the full merger plan. Upon merger, the surviving company assumes all assets and liabilities of the merged company by operation of law. Different rules govern asset purchases, stock sales, and tender offers.
LLC Merger Flexibility
For limited liability companies, Texas law grants more flexibility regarding mergers, both procedurally and substantively. The LLC statute allows operating agreements to alter the statutory merger provisions in many respects. Thus, the operating agreement plays a key role in outlining the merger approval process, consent requirements by members, any dissenters’ rights, and related issues.
Key Negotiation Issues
During merger and acquisition negotiations, some of the key issues include deal structure (statutory merger, stock purchase, or asset purchase), valuation and pricing, representations and warranties by the parties, conditions precedent to closing, and risk allocation mechanisms. Thorough legal due diligence is important on both sides, examining corporate records, material contracts, litigation risks, compliance issues, potential liabilities, and other matters that may impact the transaction.
The complex web of Texas corporate and business law governs every aspect of merger and acquisition deals. Companies considering an M&A transaction should engage experienced legal counsel to guide them through the intricacies of the process and advocate for their interests during negotiations. With proper planning and execution, buyers and sellers can negotiate transactions that generate strategic value while minimizing legal risks.
If you have any questions regarding a merger or acquisition, please contact our office today.
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