The Non-Merger Virtual Merger: Is Corporate Law Ready for Virtual Reality?

Stuart R. Cohn

The term “virtual mergers” describes the relatively recent phenomenon of companies entering into contractual arrangements that are functionally, but not legally, equivalent to mergers prescribed by corporate statutes. Virtual mergers usually involve the shared use of assets contributed by each of the companies. A central element of the transaction is that the two companies remain legally independent, each with its own directors, officers, and shareholders. The arrangements can usually be terminated by either party, allowing each company to return to the status quo ante or exercise buyout rights if contractually provided.

Although virtual mergers have occurred among public companies in Europe, no US. public company has yet engaged in such a transaction. The advantages of the transaction are very likely to lead to its use in this country among both public and smaller companies. The application of corporate statutes to a virtual merger is not clear. This article examines the issue of shareholder voting and whether, and to what extent, current statutory provisions andjudicial interpretation support shareholder voting and appraisal rights in these unusual forms of corporate combination.