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Implementation Guidance and Illustrations General

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    Implementation Guidance

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      > Distinguishing between a Merger and an Acquisition

958-805-55-1 This implementation guidance addresses the application of the definitions merger of not-for-profit entities and acquisition by a not-for-profit entity in making the determination required by paragraph 958-805-25-1 as to whether a transaction is a merger or an acquisition. Ceding control to a new NFP is the sole definitive criterion for identifying a merger, and one entity obtaining control over the other is the sole definitive criterion for an acquisition. [FAS 164, paragraph A4, sequence 105.1] If the participating entities in a combination retain shared control of the new not-for-profit entity (NFP), they have not ceded control. To qualify as a new NFP, the combined entity must have a newly formed governing body; a new NFP often is, but need not be, a new legal entity. The formation of a new NFP is not a pertinent factor in assessing whether one entity has obtained control over another. [FAS 164, paragraph A2, sequence 103.2]

958-805-55-2 Other transaction-specific characteristics can help in determining whether a particular combination is a merger, an acquisition, or another form of combination, such as the formation of a joint venture. The other characteristics, discussed in paragraphs 958-805-55-3 through 55-8, are indicators that often may help in identifying a merger. The participating entities should consider all of those characteristics and any other pertinent factors. Based on the preponderance of the evidence, the parties must make a professional judgment about whether each of the governing bodies has ceded control of those entities to create a new NFP, whether one entity has acquired the other, or whether another form of combination, such as the formation of a joint venture, has occurred. [FAS 164, paragraph A4, sequence 105.2]

958-805-55-3 Determining whether each of the governing bodies of the entities participating in a combination cede control of those entities to a new NFP requires assessing the characteristics of all of the following: [FAS 164, paragraph A5, sequence 106.1]

  • a.

    The process leading to the combination [FAS 164, paragraph A5, sequence 106.1.1]

  • b.

    The participants to the combination [FAS 164, paragraph A5, sequence 106.1.2]

  • c.

    The combined entity. [FAS 164, paragraph A5, sequence 106.1.3]

958-805-55-4 In a merger, generally no one party dominates or is capable of dominating the negotiations and process leading to the formation of the combined entity. In an acquisition, on the other hand, one party—the acquirer—

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