What is a triangular amalgamation in an acquisition?

Amalgamation is a statutory merger: two or more corporations combine and carry on as one. A triangular amalgamation adds a third corporation. The buyer’s own company does not merge with the target. A subsidiary does, so the target’s owners can be paid in the buyer’s securities or in cash while the merged business ends up owned by the buyer. The glossary entry on amalgamation covers the basics.

What the federal statute allows

The Canada Business Corporations Act requires the amalgamation agreement to say how shares of each amalgamating corporation convert into securities of the amalgamated corporation. It also lets the agreement give holders of shares that are not converted money or securities of any body corporate, in addition to or instead of securities of the amalgamated corporation. That wording is what allows the buyer’s securities, rather than the merged company’s, to go to the target’s owners.

What the buyer takes on

Once the certificate of amalgamation is issued, the amalgamated corporation keeps the property of each predecessor and stays liable for each one’s obligations, and legal proceedings against either can continue against it. A triangular amalgamation therefore brings the target’s debts and contracts along, much as a share purchase does. It is not a way to leave liabilities behind. Compare asset sale vs share sale in Canada.

Approvals and limits

A long-form amalgamation needs an agreement approved by special resolution of the shareholders of each amalgamating corporation, and a shareholder who dissents can claim the fair value of their shares. A director or officer of each amalgamating corporation must also sign a statutory declaration with the articles. It states reasonable grounds to believe that each corporation, and the amalgamated corporation, can pay its liabilities as they become due and that the realizable value of the amalgamated corporation’s assets will not be less than its liabilities and stated capital. It must also state reasonable grounds to believe either that no creditor will be prejudiced, or that adequate notice went to all known creditors and none objects on other than frivolous or vexatious grounds. The shortcut that skips the shareholder vote covers only a holding corporation and its subsidiaries that are wholly held within the group, or wholly owned subsidiaries of the same holding body corporate, so it does not fit an arm’s-length target. To amalgamate under the federal Act, a corporation formed under another statute must first continue into it.