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Subtopic on mergers does not apply in a business combination, and it shall not be applied by analogy. [FAS 164, paragraph A9, sequence 110]

  • >

    Illustrations

    • >

      > Example 1: Assessing Whether a Combination Is a Merger or Is neither

a Merger nor an Acquisition

958-805-55-9 This Example has two Cases, which share the assumptions in paragraphs 958-805-55-10 through 55-14. The Cases illustrate the application of paragraph 958-805-25-1, which requires an NFP to determine whether a transaction or other event is a merger or acquisition, and the related implementation guidance in paragraphs 958-805-55-1 through 55-8. The Cases are:

  • a.

    A combination that is a merger (Case A)

  • b.

    A combination that is neither a merger nor an acquisition (Case B).

958-805-55-10 A community foundation that is a major grantor to social service

entities in consider

its metropolitan area begins

opportunities

to

improve

a program to encourage its grantees to

their

services

through

collaborative

arrangements, including mergers, acquisitions, and joint 20X9, the community foundation convenes a meeting of

ventures. In January the chief officers and

chairpersons

of

several

charities

that

provide

complementary

and,

to

some

extent, overlapping services representatives of Charity collaborative efforts based

within its A and on their

metropolitan area. Following that meeting, Charity B see fruitful opportunities for geographic proximity and service areas;

similar missions, financial strengths

programs, and with one having

operating practices; and complementary a much larger base of current contributors

and unpaid volunteers and the other having a larger endowment and base investment income. Charity A is 30 to 40 percent larger than Charity B in terms most individual financial measures, including revenues and the fair value assets and net assets. [FAS 164, paragraph A11, sequence 112]

of of of

958-805-55-11 In February 20X9, the governing boards of Charity A and Charity B authorize the formation of an exploratory committee to recommend whether the two charities should combine and, if so, to develop a plan for implementing a combination. The committee consists of three members from Charity A and the executive director and one additional member from Charity B, with administrative support from the legal counsel of each entity. Each of the five committee members has one vote, and a recommendation of the committee requires at least four votes of the members. Its recommendation is to be accompanied by the reasons underlying both the recommendation of the committee and any dissenting votes. [FAS 164, paragraph A12, sequence 113]

958-805-55-12 In July 20X9, after completing its discussions, the committee recommends, with the full support of all five of its members, that Charity A and

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