Mergers, Acquisitions and Divestitures

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Every day countless mergers, acquisitions, and divestitures are being worked on my lawyers across the globe.  For some entrepreneurs, an acquisition is the culmination of a successful start-up.  Some companies chose to grow by merging with other companies or by acquiring other companies to save on research and development.  The largest companies have entire divisions dedicated to acquiring and divesting new technologies and it requires sound legal advice to navigate through the process.

A merger is a legal consolidation of two companies into one entity.  Often times both companies will enter into confidentiality agreements in order to effectively negotiate the terms of a merger.  Lawyers will be on hand to draw up the merger documents which can include the stipulations for each company before merger, warranties asserted by them, restricting covenants during the merger, and termination rights if the contract is breached.  One famous merger occurred in 2001 between America Online and Time Warner Cable to create AOL Time Warner.

An acquisition occurs when one company takes over another and establishes itself as the owner.  Acquisitions can sometimes be very similar to mergers.  If owners of both companies agree to join together a merger essentially occurs.  However hostile takeovers are always considered acquisitions.  The purchasing company can choose to purchase specific assets or equity in the other company from its stockholders.  Just this year Microsoft acquired Nokia’s Handset & Services Business.

A divestiture is the sale of an asset of an existing business.  Divestitures can occur to create cash, discard a lagging technology or division, or to distance a company from an unpopular product or service.  On some occasions a company will divest itself of one or more business units under government order for antitrust reasons.  A well-known example was the breakup of Bell Labs into AT&T and seven Baby Bells.

After negotiating steps are done, the companies involved need to prepare any necessary legal paperwork and prepare for other legal ramifications.  For example, mergers, acquisitions, and divestitures all have different tax implications. Attorneys and accountants will need to work together to properly value the companies for reporting to regulatory groups like the Federal Trade Commission.  No matter the size of the companies involved, coordinating mergers, acquisitions, and divestitures is a complicated process which requires legal oversight.

If your company is involved in a merger, acquisition, and divestiture you can contact Stone Law at 732-444-6303 or leave us a message on our website.