Legal Definitions - cash merger

A cash merger is a type of corporate acquisition where one company purchases another, and the shareholders of the target company receive only cash in exchange for their shares. In this transaction, the acquired company typically ceases to exist as a separate legal entity, becoming fully integrated into the acquiring company. This differs from other merger structures where shareholders might receive stock in the acquiring company, a mix of cash and stock, or other forms of consideration.

Here are a few examples to illustrate how a cash merger works:

• Example 1: Tech Giant Acquires a Startup

  Imagine "InnovateCorp," a large, publicly traded technology company, wants to acquire "AppGenius," a smaller, privately held startup known for its innovative mobile application. InnovateCorp offers to buy all outstanding shares of AppGenius for a specific cash price per share. The founders and early investors of AppGenius agree to the deal, receiving only cash for their ownership stakes. After the merger, AppGenius's operations are absorbed into InnovateCorp, and AppGenius ceases to exist as an independent company.

  This is a cash merger because the shareholders of AppGenius receive solely cash for their shares, and AppGenius is fully integrated into InnovateCorp.

• Example 2: Private Equity Firm Buys a Public Company

  Consider "Apex Capital Partners," a private equity firm, deciding to acquire "RetailLink Inc.," a publicly traded chain of department stores. Apex Capital makes a tender offer to all RetailLink shareholders, proposing to buy every outstanding share for a premium cash price. The shareholders, including individual investors and institutional funds, accept the offer, tendering their shares in exchange for cash. Once the transaction is complete, RetailLink Inc. is delisted from the stock exchange and becomes a privately owned entity under Apex Capital's control.

  This demonstrates a cash merger because Apex Capital pays cash to all existing public shareholders of RetailLink Inc., effectively taking the company private and absorbing it into its portfolio.

• Example 3: Regional Bank Acquisition

  "National Bank Corp.," a large national banking institution, seeks to expand its presence in a new geographic market. It identifies "Community Savings Bank," a smaller, independent regional bank, as an ideal target. National Bank Corp. offers to acquire Community Savings Bank by paying cash to all its shareholders. Upon completion, Community Savings Bank's branches are rebranded, its customer accounts are transferred, and its operations are fully integrated into National Bank Corp.'s larger network.

  This illustrates a cash merger because the shareholders of Community Savings Bank receive only cash for their shares, and Community Savings Bank ceases its independent existence as it is absorbed by National Bank Corp.