Managing leadership succession in the misnomered “merger of equals” or the more common combination of two large public companies of different sizes can often be tricky. To the extent that both the buyer and the target agree that one or more members of a target’s management team are to transition to management positions in the combined company, merger contracts often specify who shall become what.
But such provisions are rarely drafted to be effective for any period of time beyond the closing. Further, buyers are loath to have a target’s stockholders become third-party beneficiaries to a merger contract between the buyer and the target and thereby give individual target stockholders, and the plaintiff law firms who may eagerly seek out such individual stockholders, standing in court to sue.
As a result, if management positions are not apportioned as contemplated in the merger contract, there is not necessarily anyone left following the closing to pursue the buyer. Buyers are equally hesitant to delegate authority over future management decisions to some sub-set of legacy target directors, an act which would thereby cede outsized power over management selection to a minority of the merged company’s board.
The circumstances in the merger of Duke Energy and Progress Energy – titans in the Southeastern energy production market – illustrate the awkwardness of such arrangements.