Structuring Asset Transactions - What is a de facto merger?

In certain jurisdictions, if a buyer buys an entire business and the shareholders of the seller become the shareholders of the buyer, some courts may apply a doctrine known as the de facto merger doctrine that treats the transaction as a merger even though the transaction was not classified as a merger. This determination can be significant because in a merger transaction, the buyer takes on all of the seller’s liabilities—clearly an undesirable situation for the buyer. (Note, that the de facto merger doctrine is generally not applicable in Delaware, where most major US corporations are incorporated.)

In addition to getting classified as a de facto merger, what other conditions might shift liabilities to an acquirer in an asset purchase?

At least three common conditions can cause liabilities to shift from the seller to the buyer.

• In certain jurisdictions, most notably California, the courts require the buyer of a manufacturing business to assume the tort liabilities for faulty products manufactured by the seller when it controls the business.
   
• Buyers cannot usually terminate a collective bargaining contract under any structural condition, including even an asset sale.
   
• The acquirer in an asset purchase may have to contend with the bulk sales law, set forth in the Uniform Commercial Code (UCC). If the parties fail to comply with that law, and there is no available exemption, the buyer can be held responsible for certain liabilities of the seller.