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← Series 79: M&A, Tender Offers & Restructuring
Series 79 practice questionmediumSqueeze-Out Mergers and Appraisal Rights

In a two-step acquisition, a hostile bidder first conducts a tender offer and then completes a back-end merger to squeeze out remaining shareholders. What is the primary purpose of the back-end merger?

  1. ATo obtain regulatory approval for the acquisition
  2. BTo renegotiate the purchase price with the target's board
  3. CTo acquire 100% of the target's shares by forcing remaining shareholders to accept the merger consideration✓ Correct answer
  4. DTo allow the target's shareholders to vote on the original tender offer
Explanation

Why C — To acquire 100% of the target's shares by forcing remaining shareholders to accept the merger consideration

The back-end merger in a two-step acquisition is designed to eliminate the remaining minority shareholders who did not tender their shares in the first step. Through the merger, non-tendering shareholders are 'squeezed out' and receive the merger consideration (typically the same price as the tender offer). This allows the acquirer to gain 100% ownership of the target. Dissenting shareholders may exercise appraisal rights but cannot prevent the merger from proceeding.

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