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Sale, Acquisition & Merger
By
Mike Vaughn
The sale of a marine business may take several forms. The most simple is the direct sale
of all assets.
What are all assets?
Obviously it is everything that the business owns. This will include all “hard” assets such
as ships and support equipment, fuel and consumables on board or in inventory, spare
parts, repair equipment, offices and all office equipment.
It will also include such intangible things as:
Goodwill
Business in progress
Customer List
Employees
Advertising in place
Telephone numbers, fax numbers, e-mail address and Internet Sites.
There is another side to the sale. The buyer may also take all of the liabilities.
A liability is any thing that the company is obligated to pay, return, refund or do.
Typically liabilities include:
Mortgages
Liens
Leases
Promissory Notes and guarantees
Wages due and owing
Back wages
Union contributions
Repair bills or other payment for services received
All other financial obligations of the company.
How we deal with the asset and liability problems in a sale is determined by a variety of
factors including the nature of the business and how it is organized.
Businesses are organized in a few basic ways:
1. Sole proprietorship – One person owns and operates the entire business in his or
her name.
2. Partnership - - Two or more persons operate and own the entire business under a
joint or partnership name.
3. Corporation – The company is owned by one or more people whose ownership is
represented by shares of stock in the corporation. The corporation may be public
or private.
Private Corporation – This is typically a corporation with fewer than 30
stockholders (the number is regulated by law).
Public Corporation – This type of corporation is entitled to sell stock to any
number of shareholders.
The danger of a sole proprietorship and partnership is that the liability of the company
becomes intermingled with the liability of the owner or partners.
A very simple example is one in which the company is being sole while the sole
proprietor owner or one of the partners is involved in a divorce. His liability in the
divorce with involve his assets in the sole proprietorship or partnership. When and where
the liability may end is usually only resolved by lawyers and judges.
A corporation is a legal person in the view of the law. It transacts business by way of a
Board of Directors, elected by the shareholders and corporate officers selected by the
Board of Directors.
The corporation may conduct business as if it is a “real person”. Consequently, liability
of the individual shareholders applies only to the shares of stock that they own. Personal
liability for the officers for non-corporate acts will not be imputed to the corporation.
When the corporation is being sold, only the shares of stock will change hands. The
officers and board of directors and all outward appearance of the company may not
change at all. This provides for a very seamless transition for the new owners to take
over a going company without disturbing long term relationships with customers and
suppliers.
The purchase of a sole proprietorship or partnership involves replacing the original owner
with a new owner so that there is a very obvious change in operations.
Sale Acquisition & Merger
The terms “Sale” “Acquisition” and “Merger” have very distinct meanings.
The sale of course means a sale of the company for money or something of value.
Acquisition is the buying of a company for money or something of value.
Merger is different. A merger is a joining of two or more companies to form a new
entity. This new entity may be essentially the same as one or the other of the previous
companies. Or it may a entirely new operation.
Many times the term merger is misused to mean the buying of one corporation by
another. This is routinely done by purchasing the stock of one corporation by the other
and taking over assets and operations and blending them into the larger corporation.
A true merger is a partnership of corporations. The two companies agree upon a value of
the stock for each company and then at the time of merger the new entity will issue new
stock in proportion to the value of the old corporate stock.
A brief example would be Corporation A with stock worth $50.00 per share merging with
Corporation B with stock worth $200.00 per share with the total number of shares of
stock equal.
The new corporation would issue stock at $100.00 per share. Shareholders of
Corporation A would receive 1 share of stock for each 4 shares received by the share
holders of Corporation B.
The end result is that the shareholders are in the same relative position, price wise as
before the merger. The benefit would be that now they would anticipate a substantial
overall improvement in the operation of the entire business, so that all shareholders
would benefit.
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