Reverse triangular mergers are a popular deal structure used to acquire all of the outstanding equity interests of a target company. In a reverse triangular merger, the acquirer forms a subsidiary which is merged with and into the target company with the target company surviving the merger, and the target stockholders receive cash, acquirer stock, or a combination of cash and stock. The end result is the same as a pure stock purchase, but reverse triangular mergers offer the advantage of requiring only the approval of a majority in interest of stockholders (unless a higher percentage is required by the target company’s governing documents), subject to statutory appraisal and dissenter’s rights, instead of the approval of all stockholders (or at least a sufficient amount of shares to qualify for a follow-on short-form merger).
M&A attorneys have long believed that a reverse triangular merger, like a stock purchase, does not involve an assignment of the target company’s assets and, therefore, does not trigger anti-assignment provisions in the target company’s contracts that restrict an “assignment by operation of law.”
However, in a case of first impression, the Delaware Court of Chancery, in Meso Scale Diagnostics LLC v. Roche Diagnostics GMBH, concluded that there was ambiguity regarding whether such a provision should apply in the context of a reverse triangular merger and denied defendants’ motion to dismiss, thus calling into question this long-held belief.
H. Justine Pace, Anti-Assignment Provisions, Copyright Licenses, and Intra-Group Mergers: The Effect of Cincom v. Novellis, 9 Nw. J. Tech. & Intell. Prop. 263 (2010).