A Twist in the Delaware Two-Step: A Proposed Amendment to the Delaware General Corporation Law Would Eliminate Required Stockholder Vote


A two-step merger is a common acquisition structure for public company sale transactions.  Under this structure, the buyer commences a tender or exchange offer to obtain over 50% of the target’s voting shares, followed by a second-step merger to acquire the remaining voting shares.  Generally speaking, unless the buyer obtains 90% or more of the target’s voting shares in the first-step tender or exchange offer (or through exercising a “top-up option,” if any), the target’s stockholders must vote to approve the second-step merger.  This stockholder vote requires a proxy statement or an information statement to be delivered to the target’s stockholders, which can be onerous.

A proposed amendment to the Delaware General Corporation Law under consideration by the Delaware State Bar Association would eliminate the stockholder vote required under that law to effect the second-step merger.  The proposal only applies to targets whose shares are listed on a national securities exchange or held of record by more than 2,000 holders.  In addition, among other things, the proposal would (1) require the parties to include specific language in the merger agreement to opt-in to the proposed law, (2) require the parties to effect the second-step merger as soon as practicable following the completion of the tender or exchange offer and (3) would prohibit any “interested stockholders” (generally, stockholders owning more than 15% or more of the target’s voting shares) from being party to the merger agreement.

The proposal would not alter the fiduciary duties owed by directors to stockholders in connection with the transaction, or the judicial scrutiny applicable to the decision to enter into the transaction.  If desired, the proposal would permit a company to amend its certificate of incorporation to require the second-step stockholder vote.  

The proposal would be effective for merger agreements entered into on or after August 1, 2013. 

OUR TAKE:  The proposal, if adopted, would be a major development under Delaware law, because it may shorten significantly the time and effort needed to effect two-step mergers in Delaware.

The proposal also may mostly eviscerate the need for “top-up options” afforded to some buyers in merger agreements.  These provisions require the target, once the number of tendered or exchanged shares reaches a specified percentage, to issue to the buyer the number of shares of capital stock required to get the buyer over the 90% threshold, so that the buyer can effect a short-form merger without seeking approval by the target’s other stockholders.

The publications contained in this site do not constitute legal advice. Legal advice can only be given with knowledge of the client's specific facts. By putting these publications on our website we do not intend to create a lawyer-client relationship with the user. Materials may not reflect the most current legal developments, verdicts or settlements. This information should in no way be taken as an indication of future results.

Search Tips:

You may use the wildcard symbol (*) as a root expander.  A search for "anti*" will find not only "anti", but also "anti-trust", "antique", etc.

Entering two terms together in a search field will behave as though an "OR" is being used.  For example, entering "Antique Motorcars" as a Client Name search will find results with either word in the Client Name.


AND and OR may be used in a search.  Note: they must be capitalized, e.g., "Project AND Finance." 

The + and - sign operators may be used.  The + sign indicates that the term immediately following is required, while the - sign indicates to omit results that contain that term. E.g., "+real -estate" says results must have "real" but not "estate".

To perform an exact phrase search, surround your search phrase with quotation marks.  For example, "Project Finance".

Searches are not case sensitive.

back to top