[Last updated: 1 January 2025, unless otherwise noted]

7.1 Squeeze-out procedures

• Completing the merger – Under US state corporate laws, once a merger has been authorized in accordance with statutory requirements, i.e., by shareholder vote or action of the acquirer if it holds the requisite number of shares, it is completed by filing articles or a certificate of merger in the state or states of organization of the parties to the merger. Upon completion of the merger, it is binding on all target company shareholders, regardless of whether they voted in favor of the merger (or had no vote because the merger was effected as a short-form merger without shareholder approval).

• Effecting the squeeze-out – The merger agreement will provide for the conversion of the securities of the target company into the merger consideration. Upon completion of the merger, the outstanding shares of the target company (other than shares owned by the acquirer) cease to be outstanding and are converted into the right to receive the merger consideration, subject to the rights of dissenting shareholders who perfect their appraisal rights to receive the appraised value of their shares. In the case of a negotiated long-form merger, completion of the merger eliminates all public shareholders; in a second-step short-form merger following a tender offer, the squeeze-out eliminates shareholders who did not tender their shares into the offer.

   

  The time advantage conferred by the “two-step” merger, as shown in the indicative timeline above at “5. Timelines”, assumes that the acquirer is able to acquire sufficient shares in the tender offer such that, after step 1, the acquirer will be able to effect the step 2 squeeze-out merger via a “short form” statutory merger without holding a shareholder vote (under Section 253 of the Delaware General Corporation Law, the relevant threshold is 90%). Upon failing to do so, the acquirer and the target public company may find themselves in a position of needing a shareholder vote of the target public company shareholders (even if the acquirer, alone, holds the requisite majority shares to approve the acquisition transaction, typically 50% plus one, subject to the target public company’s corporate documents), thereby putting the acquirer and the target public company on the path of initiating a proxy solicitation process similar to that they may have otherwise taken by implementing a “one-step” merger (and losing all benefit of time saved by pursuing the “two-step” merger). Traditionally, to try to avoid this scenario, acquirers would typically provide flexibility in their merger agreement permitting them to engage in subsequent tender offer offering periods or entitling them to purchase authorized but unissued shares from a target public company (the so-called top-up option), but these are not perfect solutions (for example, a subsequent tender has no guarantee of resulting in additional tendered shares). Effective in 2013, Section 251(h) of the Delaware General Corporation Law was intended to address this scenario for those target public companies organized in Delaware. Under the section, subject to satisfying the requirements thereof (as described below), if a friendly acquirer acquires sufficient votes to approve the long-form merger of a target public company, it can consummate the second step merger without holding a separate vote. The requirements of Section 251(h) are (i) that the merger agreement expressly provide for the application of 251(h); (ii) that the acquirer consummate a tender for all of the outstanding shares of the target company; (iii) that following the offer, the acquirer and its affiliates have (through previous holdings or tendered shares) sufficient shares to approve the acquisition transaction if a shareholder meeting were to be called; (iv) that the acquirer in the tender offer merge with the target company in the acquisition transaction; and (v) that each outstanding class of target company shares not tendered is converted in the merger into, or the right to receive, the same amount and kind of cash, property, rights or securities to be paid for such class of target company shares as were tendered. 

   

  The approach of Section 251(h) has not been widely adopted into other states’ M&A statutes, but since Delaware is the jurisdiction of incorporation of a majority of US-organized public companies, it is available more often than not.

• Asset deals – In a takeover effected as an asset acquisition, in lieu of a squeeze-out, all shareholders of the target company would be eliminated through dissolution and liquidation of the target company, with the consideration received by the target company in the asset sale being distributed to the shareholders. Both the sale of all or substantially all of the target company's assets and the dissolution and liquidation of the target company would be submitted to shareholders of the target company for approval. As previously noted (see "4.8 Appraisal Rights of Minority Shareholders"), Delaware law does not provide appraisal rights for dissenting shareholders in asset sales. Other state corporate laws vary in this respect. In an asset deal, in addition to the complexity of transferring all of the assets of a public company, it is necessary to provide for possible unknown or contingent liabilities of the target company. In contrast, in both a “one-step” and “two-step” statutory merger, this issue does not arise because all of the target company's liabilities – known or unknown, fixed or contingent – become the obligations of the acquirer by operation of law upon the merger's effectiveness (or remain the obligations of the target company if the target company becomes a subsidiary of the acquirer in the merger). For these reasons, acquiring a public company through an asset acquisition is rare.