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Shareholder Approval And Share Exchange Tender Offers

Yesterday's post delved into the difference between a "share exchange tender offer" (Section 183.5) and an "exchange reorganization" (Section 181(b)) under the California General Corporation Law.  Briefly, both involve the exchange of equity securities by one corporation for the equity securities of another corporation, but the former does not result in the acquisition of control while the latter does.  The legislature created the concept of a "share exchange tender offer" as a means of imposing a shareholder approval requirement on an acquiring corporation.  As noted, however, shareholder approval is not required in every "share exchange tender offer".

A significant exception is found in Section 1201.5(b).  That statute excepts transactions in which the shareholders of the acquiring corporation immediately before the exchange own immediately after the exchange equity securities of the corporation making the offer possessing more than 5/6 of the voting power.  Thus, the approval of the shareholders of an acquiring corporation is required under Sections 183.5 and 1201.5 only when the acquiring corporation issues more than 20% of its outstanding voting securities in exchange for 50% or less of the voting securities of another corporation.  

Note to readers:  I've simplified the description of Section 1201.5(b) above to illustrate how it operates.  The statute is more complicated than as described and the above description should not be relied upon as complete.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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