For decades, M&A deal closings have been completed by mailing piles of paper — letters of transmittal, information statements, transaction documents and stock certificates — back and forth between the merger parties, the stockholders and a paying agent. This is hugely inefficient and costly.
Paper Stock Certificates Not Required
Paperless closings and online payments are now possible, in part because in most merger transactions there is no legal need for the merger parties to collect paper stock certificates from selling stockholders. Steven O. Weise, a Partner at Proskauer Rose LLP and a leading authority on the Uniform Commercial Code, recently issued an opinion to SRS Acquiom, stating that UCC §8- 207 provides all the protection merger parties need to avoid the hassle of finding and submitting paper stock certificates and the costs of surety bonds when a stock certificate is lost.
Protection To Issuer
The UCC provides extensive protection to an issuer who makes a distribution to a registered holder of its securities, even if the registered holder is no longer the actual owner of the security at the time of the distribution. Therefore, merger parties do not have to inquire about whether the registered holder continues to be the actual holder or to obtain proof of continued ownership from delivery of stock certificates or otherwise prior to distributing merger proceeds. If someone else happened to be the actual holder of a security at such time but had failed to notify the company of the transfer, that holder could have a claim against the transferee, but would have no claim against the merger parties.
Although a protected purchaser ordinarily has superior rights to the security against adverse claimants, under UCC §8-207, the rights of a protected purchaser are subject to the issuer’s rights exclusively to treat the registered holder as the person entitled to a distribution.
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