Structuring Divisive Mergers Under the Delaware and Texas Statutes: Implications on Credit Agreements and Contracts

A divisive merger under Texas law enables an existing entity to divide its assets and liabilities into one or more entities pursuant to a plan of merger or division (the plan). Delaware law also enables an existing LLC to similarly divide its assets and liabilities into two or more LLC’s or an existing limited partnership to divide into two or more limited partnerships pursuant to a plan. The Delaware statutes simply refer to this type of transaction as a "division," which is not accomplished by a merger. For ease of reference, division under both Texas and Delaware law is referred to herein as a "divisive merger."

The divisive merger gives M&A lawyers a strategic alternative to traditional spinoffs or asset sales but also presents new concerns for creditors and counterparties. Divisive mergers have implications for corporate and finance practices nationwide.

Once a plan is adopted and a certificate of division or merger is filed with the applicable secretary of state, the assets and liabilities of the initial entity will be divided as provided in the plan. There can be unintended consequences if the plan does not sufficiently and clearly make the allocations of the entities' assets and liabilities.

Fraudulent transfer statutes and regulatory requirements may impact a divisive merger. The divisive merger statutes generally cannot be used to circumvent contractual obligations under agreements with third parties existing before the effective date of the divisive merger. Lenders and counterparties may consider amending existing agreements to address divisive mergers.

Listen as our authoritative panel discusses the process as well as the consequences of adopting a plan of divisive merger under the Delaware and Texas statutes. The panel will also discuss best practices for lenders and other counterparties in transactions with Delaware and Texas entities going forward.

1. Delaware and Texas divisive merger statutes: structuring alternative to M&A spinoffs and carve-outs
2. Mechanics of a divisive merger
   1. Plan of a divisive merger: key terms
   2. Approval of divisive merger
   3. Certificate of division or merger
3. Effect of the divisive merger: allocation of assets, properties, licenses, debts, liabilities, and duties of the dividing entity among multiple survivors
4. Effects of fraudulent transfer, bankruptcy, and other laws impacting rights of creditors on divisive mergers

The panel will review these and other important issues:

• How is a divisive merger accomplished under Delaware and Texas statutes?
• How does a divisive merger impact the structure of a future M&A transaction?
• What is the effect of a divisive merger?
• What steps should lenders and other counter-partners take in existing and future credit and other agreements to address the possibility of a future divisive merger?