 In this presentation, we're going to talk about a statutory merger in more depth. Get ready to act because it's time to account with advanced financial accounting. We will now compare what could be called a friendly merger compared to what could be called a hostile takeover. So we're obviously looking about the external expansion. We're talking about two entities that are somehow in some way merging. So we have the friendly merger, which could be the transfer of assets in exchange for stock and or cash. The reason that could be more of a friendly merger type of situation is because you have the management of the two entities that are basically then negotiating over what's going to be the price and the consideration for the assets of one company to another. So you have that negotiating process. Hostile takeover. On the other hand, we have the purchase of the stock of another parent and subsidiary relationship is created and then the parent liquidates the subsidiary into the parent. So why is this going to be more of a hostile situation? You could think of this situation, of course. If you have a hostile takeover type of situation, you have one company typically going to be larger than the other company. Instead of basically going to the management and saying, okay, let's negotiate over the purchase price of possibly the assets. They could go straight to the stockholders and look to purchase enough stock, which would be over the 50% to have a controlling interest. Now once you have a controlling interest as we've discussed in the past, now you have a subsidiary parent relationship. You have a parent in a subsidiary because one has a controlling interest. However, if the objective then is to take that situation and then to liquidate the subsidiary because of that, you have that controlling interest and therefore the authority and the power typically to go through the liquidation process, then you're left with basically a merged company in the same kind of fashion. So the friendly merger is going to be like you could think of kind of a negotiation of the management. The hostile takeover, you can kind of think of one company possibly going to the shareholders and not possibly bypassing management in some way, shape, or form you could think of and purchasing over the 51% with the intention not of having a parent subsidiary relationship but using that controlling interest to then basically dissolve or liquidate this subsidiary into the parent resulting in just one company, one merged company. So statutory merger, if we're talking about a peaceful merger, then we have the A shareholders and then the corporation. So the shareholders are here, the shareholders are obviously the owners of the corporation. They own the shares of corporation A and then you've got the other entity over here where we have B, the B shareholders are now the owners of the company, the corporation B. Remember that the shareholders just to remember the hierarchy, the shareholders basically have the right to vote on the board of directors. And one of the things they have control over is who is management and who is management management then will be the people that typically will be making the decision making process. So it's kind of like you can think of it kind of like a governmental situation where we vote for representatives, those representatives then actually make the day to day type decisions. But if we have more than 51% of the shares of another of an entity, then we have complete say on who is management and that obviously gives a lot of influence on what's going to happen in the organization. Okay, so in this situation, we have A stock plus up to 50% of the assets. So we're going to say A then could provide some kind of consideration they're going to be purchasing from B and then B is going to be giving the B's assets. So in other words, B is going to be giving most of their assets, their valuable assets to A in exchange for some type of consideration, which could be stock or it could be cash or some type of other consideration. So A is going to be in essence the purchaser here, which is purchasing with something. You can consider it purchasing with cash. Typically there's stock transaction or something other than cash as well, that'll complicate things a little bit in terms of the recording of the exchange, but you can think of them as the buyer here. They're buying and they're buying out in essence all the valuable assets of B in this situation. Then B becomes in essence a shell at this point in time, right? B is now the valuable assets that have been removed from B. B is now basically a shell type of company and then there would be an elimination of B. So that means that the stock and any value, any purchasing power or any purchase price that came from company A to B will now be transferred from B, whatever's left in B in other words, whatever value is still left in B, assets minus liabilities, which will include the A stock that was transferred and any assets, the purchase price, whatever they purchased it with, if it was cash, it would be cash. That would then be going to the B shareholders because they're the owners of B. So B would then be liquidated at that point in time and B's shareholders would be compensated with basically whatever the purchase price was here and whatever's still on the books at B's books before it was ultimately liquidated resulting in one company here. So now we have A corporation, A basically has the assets and the major assets that they wanted through the negotiation of B and of course A's assets. And then we have the shareholders of A that obviously own the company A still. So they're still owned by the shareholders and any shares that were part of the negotiation price, part of the payment, they paid cash, A paid cash to B and also paid possibly shares, which is a common. Then those shares would then go to the shareholders of B when B was liquidated. So now you could have A's shareholders and B's shareholders having some ownership interest, the percentage would depend on the negotiation of the one company and you're left with the one company, company A, which now includes the assets of A minus any consideration they gave and then the assets of B that were purchased in that merger process. Now, if we talk about a statutory merger that's a hostile takeover, you can see here, you have the same setups. You have A owns the shareholders here own A, the shareholders for B own B. And then instead of A, instead of like A's management going to B's management and having a negotiation, A's management is going directly to the owners and you can imagine if they're going to the owners and they're trying to, a really hostile takeover you see in the movies or something like that, they're trying to go and buy out the shares and get to 51% before anybody knows about it. They get a controlling interest and whatnot or something like that. But you can see how this is basically, it's kind of bypassing the negotiation process from management to management, it's going directly to the ownership interests and are buying the individual ownership interests. So we have that and then obviously at this point in time, if A, at any point in time that A corporation then buys over a majority in B, which would be 51 or above a controlling interest or if there's some other circumstance, it could be something different, but typically that's going to be the number, then they would then have a controlling interest. At that point in time, then we wouldn't have exactly a merger situation. We'd have a parent subsidiary relationship at that point in time. You'd have a parent subsidiary relationship and you would have to then generally prepare the consolidated financial statements for the two organizations. However, if the intention of corporation A after having control, now they control the board of directors, they control the voting power of the board of directors, which includes who management is and therefore basically the big decision-making processes of management and therefore they could use that control to then liquidate B. That's why it's going to be a hostile takeover, right? So now you've got the company purchase them not to make a subsidiary necessarily, but basically ultimately to liquidate company B resulting in a similar situation we had before with just basically A remaining and then A shareholders and B shareholders, depending on how this whole thing went, being now the owners of the one organization, which is A. These assets are given to A and B is liquidated. This is a situation where we create a new company. So you can imagine a situation where you have the two entities, they're going to create a new entity, then the new company issues stock to both the combining entities in exchange for their stock. So now that the new entity is going to issue their stock and basically the two existing companies that the investor are going to then exchange their stock for it. So now the new entity, the newly created entity is basically the parents. So we're at this step of the situation. You have the new entity now being the parent because they have complete controlling interest of the other two companies if assuming that all stock of both companies were then exchanged. So resulting in both combining entities being temporary subsidiaries of the new company, both subsidiaries are then liquidated into the new company and become divisions. So you can imagine at that point in time then you got the new company that is now the parents company of the two older companies that have traded their stocks into the parent. Then you liquidate the two prior companies resulting in just the one company resulted in one legal entity. Same starting point. We have A shareholders owning A, B shareholders owning B. A new company is created. The new company is issuing stock. They issue stock to A and B in exchange for the stock of A and B. The result of that being that C now becomes in the intermediate step is going to have a subsidiary relationship that C will then become the parent at that point in time, the parent over A and B. So in other words, a shell company is being created. That shell company is exchanging the stock for the stock of A and B. And by doing so becomes now the parent company of A and B. And then we're going to say that A and B, now that C has a controlling interest, C can then liquidate A and B, the result being that now you have basically A shareholders and B shareholders having some type of controlling interest over the new entity, which is now going to be the C corporation. Now obviously we could have a third option in that format using a similar format that we just looked at, which is similar to option two, a statutory consolidation, but the subsidiary companies are not liquidated. So if that's the case, the new company issue stock to the shareholders of the two existing corporations in exchange for their stock in the new and the new subsidiary corporations. Therefore, the end result will look something like this. Now you've got A and B still having ownership over C in essence, but C now here, the new the new company is now in a situation where they're a parent company of A and B. So in other words, we just negated the last step of basically liquidating A and B into the new company C. So company C has been set up. That makes A and B the subsidiaries. And then of course you can keep that structure, you can keep that structure. Whereas you now have the shareholders, the hierarchy being A and B shareholders owned to in some ratio, the new company that's been set up company C. And then company C has a controlling interest in the subsidiaries, which were the original companies, company A and B.