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mergers and acquisitions

Mergers and acquisitions (M&A) is the catch-all term used to refer to the different forms for transferring or consolidating ownership of businesses and assets. Although the terms merger and acquisition are used interchangeably, they have different legal meanings. When one company (the acquirer) purchases the stock, equity interests, or assets of another company, the transaction is called an acquisition. Sometimes an acquired company continues to operate independent of the acquirer, and sometimes the acquired company ceases to operate independently and is absorbed by the acquirer. Mergers, on the other hand, are generally the combination of two companies, and result in the formation of a new company.

In Texas, mergers and acquisitions (M&A) are governed by both state statutes and federal law. Under Texas law, specifically the Texas Business Organizations Code (BOC), the process for M&A is outlined with specific provisions for different types of business entities such as corporations, limited liability companies (LLCs), and partnerships. An acquisition in Texas can occur through the purchase of a company's stock, equity interests, or assets. Depending on the structure of the acquisition, the acquired company may continue to operate independently, or it may be completely integrated into the acquiring company. In a merger, two companies combine to form a new entity, with one company typically surviving and the other dissolving. The BOC requires certain procedural steps to be followed, including approval by the board of directors and shareholders of the companies involved, filing of a plan of merger or acquisition with the Texas Secretary of State, and adherence to any applicable federal regulations, such as antitrust laws enforced by the Federal Trade Commission (FTC) and the Department of Justice (DOJ). It is advisable for companies to consult with an attorney to navigate the complex legal and regulatory landscape of M&A transactions.


Texas Statutes & Rules

Federal Statutes & Rules

Clayton Act, 15 U.S.C. §§ 12–27
The Clayton Act addresses anticompetitive practices and seeks to promote fair competition. It is relevant to M&A as it includes provisions that regulate mergers and acquisitions which may substantially lessen competition or tend to create a monopoly.

The Clayton Act, specifically Section 7, prohibits mergers and acquisitions where the effect 'may be substantially to lessen competition, or to tend to create a monopoly.' This statute requires companies to evaluate the competitive effects of their proposed M&A transactions. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are responsible for enforcing these antitrust laws. Before certain mergers and acquisitions can proceed, companies must file premerger notifications with the FTC and DOJ, who then review the transaction for potential anticompetitive effects. This review process is governed by the Hart-Scott-Rodino Antitrust Improvements Act, an amendment to the Clayton Act.

Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a
This Act amended the Clayton Act to require companies to file premerger notifications and to observe waiting periods for antitrust review before completing certain large M&A transactions.

The Hart-Scott-Rodino Act establishes the federal premerger notification program, which requires companies to report large M&A transactions to the FTC and DOJ before they can be completed. The Act sets forth filing thresholds that, when crossed, trigger the requirement to file. It also establishes waiting periods during which the transaction cannot be completed while the agencies review it for potential anticompetitive effects. If the reviewing agency believes that the transaction may violate antitrust laws, it may request further information from the companies or seek a court order to prevent the transaction from being completed.

Securities Exchange Act of 1934, 15 U.S.C. §§ 78a–78pp
The Securities Exchange Act of 1934 governs the trading of securities post-issuance, including the disclosure of important information by publicly traded companies. It is relevant to M&A as it requires disclosure of material information regarding transactions that affect the ownership of securities.

The Securities Exchange Act of 1934 requires public companies to disclose information about significant corporate events, including mergers and acquisitions. Specifically, companies must file reports with the Securities and Exchange Commission (SEC) detailing the terms of the M&A transactions, including the financial statements of the companies involved, and any changes in the ownership of securities. The Act also regulates proxy solicitations and requires disclosure of information to shareholders when seeking their vote on M&A transactions. Additionally, the Act contains provisions against insider trading and fraud in connection with the purchase or sale of securities.

Williams Act, Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
The Williams Act amends the Securities Exchange Act of 1934 and provides protections for investors in the context of tender offers and other acquisition techniques. It is relevant to M&A as it regulates the disclosure of information by parties seeking to acquire a significant stake in a company.

The Williams Act requires any person or group acquiring more than 5% of a company's securities to file a statement with the SEC, which includes information about the identity of the purchaser, the source of funds used for the purchase, and the purchaser's intention. This is to inform the shareholders and the public about potential changes in corporate control. The Act also regulates tender offers by requiring the offeror to disclose detailed information about the offer to the company's shareholders and the SEC, and by providing certain protections to shareholders, such as the right to withdraw from the tender offer within a certain period.