Also known as: share exchanges · share-exchange · share-for-share exchange
Written by attorneys — see sources below.
A statutory mechanism by which one corporation acquires all of the shares of one or more classes or series of shares of another corporation or all eligible interests of another entity. The acquiring corporation provides consideration in the form of its own shares or other securities, rights to acquire shares, cash, other property, or any combination of these. The transaction occurs pursuant to an approved plan of share exchange that identifies the parties and sets forth the terms and manner of exchange.
Sierra Solutions adopts a written plan to acquire every share of Synergy Systems. In return, Synergy shareholders receive Sierra common stock plus cash. After board and shareholder approval of the plan, Sierra issues the stock and pays the cash, and Synergy becomes a wholly owned subsidiary while continuing its separate existence.
Sentinel Security approves a plan under which Sapphire Technologies will acquire all of Sentinel's common shares. Sapphire will deliver its own shares, warrants, and a cash component. Once the plan receives the required approvals, every Sentinel shareholder must surrender shares on the stated terms, and Sapphire becomes Sentinel's sole owner.
Sebastian Santos, a minority shareholder in a target company, challenges the fairness of the consideration offered in a share exchange with Solomon Silver's acquiring corporation. The court examines whether the exchange ratio and mix of stock and cash adequately reflect the target's value and the benefits flowing to the controlling shareholder.
In 1974 Signal Companies sold its Signal Oil and Gas subsidiary for $420 million in cash and began seeking investment opportunities. In April 1975 Signal negotiated with UOP and agreed to purchase 1.5 million newly issued UOP shares plus 4.3 million publicly held shares via tender offer, all at $21 per share, giving Signal 50.5 percent ownership. UOP stock had been trading just under $14 per share immediately before the announcement. Signal nominated six directors to UOP's thirteen-member board and later replaced UOP's president with James C. Crawford, a longtime Signal subsidiary executive who also joined Signal's board. UOP recorded a $35 million operating loss in 1975 after the Come-By-Chance refinery entered bankruptcy, but by the end of 1977 its gross revenues reached $730 million and net income per share stood at $2.74, nearly matching 1974 performance. In February 1978 Signal officers Arledge and Chitea, who also served as UOP directors, prepared a feasibility study concluding that acquiring the remaining 49.5 percent interest at any price up to $24 per share would be a good investment for Signal. Signal's Executive Committee then authorized management to negotiate a cash merger at a price in the $20 to $21 range. On February 28, 1978 Signal issued a press release announcing negotiations for acquisition of UOP's minority interest. Crawford contacted UOP's non-Signal directors individually and retained Lehman Brothers to render a fairness opinion, agreeing to a $150,000 fee after initial discussions of $250,000. On March 6, 1978 the boards of both companies met and approved the merger agreement at $21 per share, with Signal-affiliated UOP directors abstaining on advice of counsel. Lehman Brothers delivered its two-page opinion letter stating that $21 was fair. The May 1978 proxy statement described the price determination as resulting from "discussions" between Crawford and Signal officers, attached the Lehman Brothers opinion letter, and reported that UOP's board had approved the merger unanimously. At the May 26, 1978 annual meeting 56 percent of the minority shares were voted, approving the merger by a nearly 12-to-1 margin among those voting and producing 76.2 percent overall approval when combined with Signal's shares. The merger closed the same day, converting each minority share into a right to receive $21 cash. William B. Weinberger, a former UOP shareholder, filed a class action in the Court of Chancery on behalf of all UOP shareholders as of May 26, 1978 who had not exchanged their shares for the merger price. An initial complaint was dismissed for failure to state a claim. An amended complaint followed, and the case proceeded to an eleven-day trial in October 1980.
View caseThe acquiring corporation may deliver its own shares or other securities, rights to acquire shares or securities, cash, other property, or any combination of these. The plan must specify the terms and manner of exchange.
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Yes. The board of directors must first adopt the plan of share exchange. The plan is then submitted to shareholders for approval by the requisite vote.
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A foreign corporation or eligible entity may be the acquired entity only if the share exchange is permitted by the organic law of that entity.
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The plan must include the name of each entity, the terms and conditions of the exchange, and the manner and basis of exchanging shares or interests.
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…interest in Mayflower and (2) because of the advantages that would accrue to Hilton as an incident to 100 per cent ownership, "a share-for-share exchange will be fair and reasonable to all concerned." 93 A.2d 110 . By ultimately affirming the Chancellor and thus finding the terms of the merger to be fair to the minority, it can be argued…