M&A Boot Camp booklet 2023 - Flipbook - Page 31
generally speaking, the adjusted basis of the assets held by the target
company is not “stepped up”
B.
Purchase of Assets – the acquirer purchases some or all of the target company’s
assets from the target company, and may assume certain specified liabilities of the
target company –
1.
Requires approval of the holders of at least a majority of the outstanding
target company shares (assuming the transaction involves the sale of all or
“substantially all” of the target company’s assets); under the corporation
laws of some states, target company stockholders who do not vote in favor
of the transaction may have statutory “appraisal” or “dissenters,” rights,
allowing them to demand and receive the appraised value of their target
company shares in cash
2.
The acquirer does not assume responsibility for the target company’s
known or unknown liabilities, except to the extent they are expressly
assumed by the acquirer (or are imposed upon the acquirer by law); the
acquirer may “leave behind” unwanted liabilities
3.
“Bulk transfer” laws may apply where a major part of the target
company’s inventory or equipment is being transferred (which may
require advance notification of the target company’s creditors and, under
the laws of some states, payment of proceeds from the transaction to the
target company’s creditors)
4.
If the target company is financially distressed, transfers for less than
reasonably equivalent value may present fraudulent transfer issues under
federal bankruptcy or state laws
5.
An assignment of the target company’s contracts and governmental
permits may require third-party and governmental consents; certain
governmental permits may be non-assignable
6.
Sales or other transfer taxes may be payable with respect to the assets
transferred to the acquirer (although some states have sales tax exemptions
for “casual and isolated sales” or sales made for resale)
7.
For federal income tax purposes, the acquirer gets a “step up” in the basis
of the assets acquired; however, the target company’s stockholders may be
subject to “double level” income tax liability if the proceeds of the sale of
the assets are distributed by the target company to its stockholders
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