synthetic merger

USA

A type of merger structure which allows two companies to retain their separate legal entities, but externally the merged entity acts as a single corporate group through a series of contractual and constitutional arrangements.

A well-known type of synthetic merger is the dual listed company structure, where business operations are not jointly owned but remain under the separate ownership of two listed companies, usually in two different jurisdictions. A dual listed company structure usually has contractual or constitutional provisions which require the following:

• Equalization: Profits are to be distributed equitably between the two companies, usually based on an equalization ratio which reflects the relative value of each company's shares. Stockholders are to be put in the same economic position that they would have been if they held shares in a single combined entity.

• Stockholder voting: Decisions that affect the combined group as a whole are taken by both sets of stockholders voting together as a joint electorate.

• Management: Any person who is a director of one company must at the same time be a director of the other.

• Takeovers: No third party can take over one company without the other.

• Accounting: There is a single set of combined accounts for both companies.

For more information, see Practice note, Acquisition structures: international acquisitions: Twin holding company structures (www.practicallaw.com/8-107-3925).