Question
From: (redacted)
Sent: Tuesday, January 22, 2008 10:31 AM
To: Verne, B. Michael
Subject: An odd transactionstructure
Mike: I need your help on this one.
X and Y are corporations,each of which is its own ultimate parent.
X will merge into a newlycreated corporate subsidiary of Y, with X surviving as a wholly ownedsubsidiary of Y. Shareholders of X will receive newly issued voting securitiesof Y (not shares of the sub).
In case it's relevant(I don't think it is), the original shareholders of Y will continue to holdmore than 50% of Y's voting securities, but Y will remain the ultimate parent.
Here'sthe wrinkle. As a result of the transaction, X will have a contractual powerinitially to appoint seven of the thirteen directors of Y, but once theoriginal designations have been made, the shareholders of Y will thereafter(i.e., in the next board election) be free to elect the directors of Y, with Xhaving no continuing contractual power to appoint any directors.
Myview is that the initial transaction involves an acquisition of Y by X (becauseof the contractual power), even though Xwill lose control (because it loses its contractual power) immediately afterthe initial designation of directors. At that point, Y will become its ownultimate parent.
Yourthoughts?