Explore the complexities of M&A transactions with a focus on mitigating risks related to buyer stock, foreign exchanges, and legal pitfalls. Gain insights from a real-life case involving a Canadian corporation acquiring a business in Mesa and Scottsdale, and learn valuable lessons for navigating the intricacies of dealing with publicly traded shares.
M&A Stories
December 10, 2023
In the complex world of M&A, the choice to accept buyer stock adds a layer of risk, especially when dealing with publicly traded shares on foreign exchanges. A recent case sheds light on the importance of understanding the intricacies involved.
In this particular scenario, a Canadian corporation, publicly listed on the Canadian Securities Exchange, acquired a business operating in Mesa and Scottsdale. The deal involved a combination of cash and buyer stock, with the latter distributed among the sellers.
However, complications arose post-closure. The buyer stock, subject to U.S. securities laws, had restrictions hindering its transfer. The buyer assured sellers they could sell under a specific federal securities law exemption on the Canadian Securities Exchange.
Following the deal’s completion, one seller owner faced a declining buyer stock price and unforeseen federal securities law restrictions. This prompted legal action in an Arizona state trial court, alleging fraud against the buyer.
Despite the seller’s claims, the trial court, and subsequently the appellate court, found no evidence of fraud. The buyer’s explanation of the federal securities law exemption held up.
The lesson here is clear: when buyer stock forms a substantial part of the purchase price (in this case, 80%), engaging a securities lawyer becomes crucial. A legal professional can guide sellers through the complexities of selling buyer stock under federal securities law exemptions, preventing post-closure surprises.
Case Reference: Whitestar Solutions, LLC v. Medmen Enterprises, Inc., No. 1 CA-CV 22-0738 Court of Appeals of Arizona, Division One (Filed December 5, 2023).
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Podcasts https://www.buzzsprout.com/2142689/12339043
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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