asset acquisitions - Jackson Walker LLP

The Court then set forth the factors to be considered in determining whether the de factomerger doctrine should apply:The factors that courts generally consider in determining whether to characterize an assetsale as a de facto merger are whether (1) there is a continuation of the enterprise of theseller corporation so that there is continuity of management, personnel, physical location,assets, and general business operations; whether (2) there is a continuity of shareholderswhich results from the purchasing corporation paying for the acquired assets with sharesof its own stock, this stock ultimately coming to be held by the shareholders of the sellercorporation so that they become a constituent part of the purchasing corporation; whether(3) the seller corporation ceases its ordinary business operations, liquidates, and dissolvesas soon as legally and practically possible; and whether (4) the purchasing corporationassumes those obligations of the seller ordinarily necessary for the uninterruptedcontinuation of normal business operations of the seller corporation. Id. at 359 (citationsomitted).The SJC went on to find that each of the four factors had been satisfied in this case. Thebusiness continued to be conducted under the old name and style, with the same personnelservicing Beaver’s former customers, in the same location, even using the same telephonenumbers as Beaver. Further, Citizens did assume ordinary course of business obligations ofBeaver, assuming executory contractual obligations, and paying certain of the trade creditors ofBeaver. Beaver, in turn, ceased all operations inasmuch of all of its operating assets wereacquired by Citizens. While the corporate shell of Beaver was not dissolved right away, theCourt found that the third factor had been satisfied because Beaver did not have any businessoperations after the sale. Finally, the sole owner of Beaver acquired 12½% equity interest inCitizens and the Court found that this was enough to satisfy the continuity of ownership factor.The significance of the Cargill case is that the de facto merger doctrine could well beapplicable to many, if not most, acquisitions of businesses in Massachusetts which are structuredas asset transactions. Thus, while the de facto merger doctrine is said to be one of the exceptionsto the general rule that liabilities of a corporation will not pass to the purchaser of its assetsunless specifically assumed by such purchaser, the exception could well apply to so many casesas to overwhelm the general rule itself. Of the four factors that courts generally consider indetermining whether to characterize an asset sale as a de facto merger, at least three are probablypresent in the vast majority of business acquisitions. Indeed, to the extent that there is any“typical” acquisition, it is one falling within the facts of Cargill:• an existing operating business with good will, a reputable trade name, goodpersonnel, etc., is acquired by a new owner who has every intention of carrying on thebusiness under existing trade names and with as little break in the continuity of thebusiness as possible in order that customers and suppliers of the business will take aslittle notice as possible and be pleased to continue to do business under the newownership. Thus the first factor is clearly not an exception to any general rule but,rather, the norm.3018518v1Appendix A - Page 4