Recent proposed amendments to the Delaware General Corporation Law contain an important addition to Section 251, which governs mergers between Delaware corporations, that would effectively allow the parties to dispense with the need for a back-end stockholder vote on a merger in certain cases where the buyer has acquired a sufficient number of shares in a front-end tender offer. If approved by the Delaware Legislature and signed into law, this amendment, which would appear as Section 251(h), would become effective August 1. If enacted, this amendment would help to streamline two-step transactions, effectively eliminating the delay between the closing of the tender offer and the consummation of the merger that would otherwise result from the need to hold a stockholders’ meeting to vote on the adoption of the merger.
The Proposed Amendment
Currently, under Section 251 of the DGCL, a long-form merger must be approved by the target corporation’s board of directors and must then be adopted by the requisite vote of its stockholders. In a typical two-step merger, the acquirer commences a tender offer to purchase a minimum number of shares (generally a majority of the outstanding common stock) and, if the tender offer is successful, completes a back-end merger, acquiring the remaining shares at the same price offered in the front-end tender. Although the stockholder vote to approve the merger in this context is usually a foregone conclusion, given that the acquirer, upon completion of the tender, owns the requisite voting power to adopt the merger agreement, under the current statute the merger cannot proceed under existing Section 251 without that vote. Since many public company charters prohibit action by written consent of stockholders, the practical effect is that acquirers seeking to consummate a back-end merger under Section 251 must call and hold a meeting of stockholders to secure the vote.
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