A merger is the combining of two or more entities into one. Traditionally, the transaction is treated as though the buyer acquired all the assets of the seller for the merger consideration and the seller was liquidated. There are two basic types of mergers, direct and triangular. In a direct merger, the acquirer (who automatically succeeds to all of the assets and liabilities of the extinguished company) absorbs the target. Conversely, if the acquirer forms a subsidiary to be used in the merger, the combination of the target and subsidiary is called a triangular merger. Triangular mergers occur in two ways, either a forward triangular merger or a reverse triangular merger. In a forward triangular merger the acquired corporation is merged into a subsidiary and its stockholders receive securities or other consideration for their stock. In a reverse triangular merger, the subsidiary is merged into the selling corporation, which is the surviving corporation and becomes in turn a subsidiary of the buyer.
Generally, mergers require shareholder approval. Once shareholder approval is obtained even non-consenting shareholders, by operation of law, are bound and become entitled to share in the consideration for the transaction. Shareholders that do not vote in favor of a merger and decline to accept the merger consideration may be able to have their appraisal rights (value of their shares) determined by the court. Under the California Corporate Code, dissenting shareholders have the right to be paid in cash for their shares.