What do I give up by choosing a merger over a sale?

Owners use the word “merger” for any deal where two businesses combine. The law has no single meaning for the word, and this page uses two. One is an amalgamation under the Canada Business Corporations Act (CBCA). The other is a “merger” as the Competition Act defines it. Neither gives a list of what an owner loses, so the useful question is what changes.

Your shares become something else

Under CBCA section 182, the amalgamation agreement sets the manner in which the shares of each corporation convert into shares or other securities of the amalgamated corporation. If any shares are not to be converted, it states the money or securities their holders receive in addition to or instead of securities of the amalgamated corporation. Under section 183, the shareholders of each corporation approve the agreement by special resolution, and every share carries a vote on it, subject to the class votes in subsection 183(4). Section 184 lets a holding corporation and its subsidiaries, or wholly-owned sister subsidiaries, amalgamate by directors’ resolution without sections 182 and 183.

The obligations come with you

Section 186 provides that on the date shown in the certificate of amalgamation, the property of each corporation continues to be the property of the amalgamated corporation. The amalgamated corporation continues to be liable for the obligations of each, and an existing cause of action is unaffected. The old corporation’s debts and claims do not stay behind with a seller. For how a sale of assets or shares treats them, see asset sale vs share sale.

Competition review reaches both routes

For sections 92 to 100, Competition Act section 91 defines a merger as the acquisition or establishment, direct or indirect, of control over, or a significant interest in, the whole or a part of a business of a competitor, supplier, customer or other person. The acquisition may be by purchase or lease of shares or assets, by amalgamation, by combination or otherwise. Choosing a merger therefore does not add or remove review by itself. Section 113.1 applies the notification provisions to the substance of a transaction designed to avoid them. Under section 114, subject to Part IX, the parties to a proposed transaction that is of a specified type, exceeds the Act’s thresholds and is not exempt must notify the Commissioner before completing it.

A protection you keep

Under CBCA section 190, a shareholder may dissent if the corporation resolves to amalgamate otherwise than under section 184. A shareholder who follows section 190’s procedure, including a written objection and a written demand within twenty days after notice of, or learning of, the resolution’s adoption, is entitled to be paid the fair value of the shares, determined as of the close of business on the day before the resolution was adopted. Section 190 is subject to sections 191 and 241 and to a solvency limit in subsection (26).