Statutory Merger

Updated on April 4, 2024
Article bySayantan Mukhopadhyay
Edited bySayantan Mukhopadhyay
Reviewed byDheeraj Vaidya, CFA, FRM

What is a Statutory Merger?

A statutory merger is the kind of merger in which two merged companies must comply with statutory laws. Therefore, one of the two companies keeps the same legal identity before the merger, and the other loses it.

Key Takeaways

  • A statutory merger is a type of merger in which two companies are required to comply with statutory laws. In this type of merger, one company retains its legal identity while the other loses it. 
  • TDC has made a $2.5 billion offer to acquire TV Station Viasat and other entertainment assets from Sweden’s Modern Times Group, resulting in a combined group with a revenue of $5.2 billion. 
  • During mergers and consolidations, the federal and state governments have the authority to intervene and halt the process using antitrust laws if they determine that it could lead to unfair advantages or market influence through monopoly.

Explanation

A statutory merger is a type of merger where one of the companies gets to keep its legal entity even after the merger. For example, A Co. and B Co. enter into a statutory merger. As per the rules of such a merger, one company of these two will keep its legal entity intact. And another will cease to exist. This type of mergerType Of MergerMerger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage firm.read more is just like an acquisition. A company acquires another company, and still, the acquirer keeps its legal entity, and the acquired one loses its identity.

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Why Statutory Merger?

statutory merger

source: ft.com

The above snapshot is a statutory merger example. TDC has offered $2.5 billion to buy TV Station Viasat and other entertainment assets from Sweden’s Modern Times Group, creating a group with combined revenue of $5.2 billion.

There are many reasons why organizations consider such a merger. Here are the few most important ones: –

If we think from the company’s point of view that it would lose its identity, we would see that there are other reasons for merging with another bigger or better company. Here are a few reasons: –

  • The company may feel that merging with another bigger company would benefit its shareholders more than independently running it. But, since the purpose of a business is to maximize the shareholders’ value, this can be a decent movie.
  • Secondly, the company may feel that by merging with another company, there would be little/almost no conflict of interest in operations (though, in most cases, it is not true).

Unless both parties agree to such a merger, it cannot happen.

So now, let us look at the legal requirements and procedures.

However, a shorter form of the statutory merger is possible too. For example, it can happen between a parent company Parent CompanyA holding company is a company that owns the majority voting shares of another company (subsidiary company). This company also generally controls the management of that company, as well as directs the subsidiary's directions and policies.read more and its subsidiary. Before going for this more concise form, one should do its due diligence carefully and thoroughly.

We need to pay heed to another aspect in case of such a merger. It is the objection of shareholders against an extraordinary transaction.

They can use their appraisal rights and demand that –

  1. They should appraise the shares of the corporation before the merger.
  2. Before the merger ever happens, the shareholder/s must give the fair market value of the shares she/he/they own in the company.
  3. In short, a statutory merger must adhere to the well-being of both the parties- shareholders and business.

Differences Between Statutory Merger and Statutory Consolidation

  • In a statutory merger, one of the two parties retains its entity, and the other merges into the other by losing its entity. Both legal entities cease to exist when two parties create a new identity in a statutory consolidation.
  • In a merger, the assets and liabilities of the merging company (one that loses its identity after the merger) become the property of the acquiring company (one that retains its identity intact even after the merger). In a consolidation, both companies’ assets and liabilities become the larger company’s assets and liabilities formed after consolidation.
  • In mergers and consolidation, the Federal and State government can stop the process of merger or consolidation by using anti-trust laws if they find that by merger or consolidation, a company (new or old) gets an unfair advantage over others or can affect the market by becoming a monopoly.

Frequently Asked Questions (FAQs)

1. What is the difference between a statutory merger and an acquisition?

The distinction lies in the treatment of the entities involved. In a statutory consolidation, both merging companies are terminated and replaced by a successor organization. On the other hand, a statutory merger is more akin to an acquisition, where one entity thrives and continues its operations after the transaction.

2. What are the tax consequences of a statutory merger?

The tax consequences of a statutory merger can vary depending on the specific structure chosen for the merger or acquisition transaction. It is crucial to consider the tax implications carefully when determining the appropriate format for a particular transaction.

3. What are the advantages of statutory mergers?

Statutory mergers offer advantages such as streamlined operations, enhanced market position, synergy and collaboration, access to new markets, and economies of scale. By consolidating two companies into one, redundancies can be eliminated, leading to increased efficiency. The combined resources and expertise create a stronger market presence and opportunities for collaboration and innovation. Merging also provides access to new markets ad potential cost savings through economies of scale.

This article is a guide to Statutory Merger. We discuss a statutory merger example, work, legal requirements, and differences with statutory consolidation. You may also have a look at these recommended M&A articles: –