Spot The Difference: Mergers And Amalgamations In Corporate Transactions

• Published date: 04 March 2022
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity, Corporate and Company Law, Contracts and Commercial Law
• Law Firm: McMillan LLP
• Author: Ms Caroline Samara and William Burke

Corporate transactions take on many different forms, including arm's length mergers and acquisitions transactions and related party corporate reorganizations. One common element of many corporate transactions is the combination of two or more corporations into a single successor corporation, often referred to by those involved with corporate transactions as a 'merger'. The legal concept of 'merger' exists in the U.S.; under Canadian law, however, a typical method of combining two or more corporations is referred to under corporate statutes as an 'amalgamation'. Although an amalgamation is similar in principle to a U.S. merger, there are some key differences that are relevant considerations when structuring corporate transactions and completing diligence on target corporations.

Under Canadian law, the amalgamating corporations continue as one corporation that shares each pre-amalgamating entity's rights and liabilities. Neither predecessor is dissolved - each survives in the resulting entity. The Supreme Court of Canada has analogized the legal concept of amalgamation to 'a river formed by the confluence of two streams, or the creation of a single rope through the intertwining of strands'¹, effectively maintaining their shared history while taking on a new form.

In contrast, in the U.S., corporate mergers have the effect of one corporation surviving and the other(s) ceasing to exist as legal entities. The surviving corporation absorbs the liabilities and assets of the other non-surviving entities. Consolidations are also available in the U.S. as illustrated by the corporate statute in Delaware; although similar to Canadian amalgamations, a key distinction is that the resulting corporation is considered a 'new corporation' under Delaware law. In neither case does the resulting corporation retain the histories of all its predecessors. As such, contractual obligations from any non-surviving entities legally undergo an assignment and could therefore be subject to anti-assignment provisions contained in contracts to which the non-surviving entities are a party.

If a potential corporate transaction triggers an anti-assignment provision in a contract, a corporation will likely be required to obtain consent from the other parties to the contract if it wishes to ensure the resulting entity can avail itself of that contract's benefit. In M&A transactions, the contracts that a target company are party to may be a key component in the value the purchaser attributes to...