An acquisition occurs when one Illinois corporation
takes over and absorbs another. The target company, the corporation that is absorbed, ceases to exist, loses its identity and becomes part of the larger surviving corporation. The surviving corporation assumes the rights, privileges, and liabilities of the absorbed company. The buyer, the surviving corporation, buys the other company’s stock or assets and the the buyer’s stock continues to be traded. Acquisitions are “private” or “public” acquisitions depending on whether the stocks of the target company are publicly traded. Acquisitions are also characterized as “friendly” or “hostile” depending on how the target company perceives the acquirer.
In comparison, a merger is when two separately owned and operated corporations, of relatively equal size, agree to go forward as a single unified company. When these two companies combine into a new and unified business, this “survivor” corporation usually issues new shares of stock in exchange for the shares held in the old companies by their shareholders. This is typically known as mergers of equals. From a practical standpoint, mergers of equals are rare. Usually, one corporation will buy another, and as part of the terms of the deal, the acquired corporation will declare it a merger (as a way to ameliorate the negative connotations associated with being bought out) even tough its is technically an acquisition. Purchase deals, scenarios where CEOs of two different corporations decide that joining forces is in the best interest of both companies, are also called mergers.
When the scenario involves an unwilling corporate takeover, and the target company does not reach a friendly deal with the absorbing corporation, it is called an acquisition. The real difference between the terms lies in how the purchase of a corporation is communicated to, and taken by, the target corporation’s shareholders, board of directors, and employees. From a legal standpoint the differences between mergers & acquisitions lie in how the surviving corporation deals with rights and liabilities once a merger or acquisition has occurred.
When a corporation acquires another company’s assets, the buyer is not usually liable for the seller’s debts and liabilities. Exceptions to this general rule are the following:
The Buyer agrees to assume all or some of Seller’s debts and liabilities in exchange for a lower sales price
In a “de facto” merger, where the sale is really a merger of two businesses but don’t follow Illinois State laws on mergers (such as getting shareholder approval)
In scenarios where the seller is left with insufficient funds or assets to pay its debts to creditors (known as fraudulent sale)
In scenarios where the Buyer is a “continuation” of the Seller (for example, where the directors, shareholders, and officers for the Buyer and Seller are the same or substantially the same, before and after the sale)
In scenarios where the Buyer does not comply with Illinois “Bulk Sales” requirements (which require Buyer to notify Seller’s creditors of the sale, within a specific time, before it takes possession of the assets or pays for the assets)