New Legislation Eases the Way for Mergers Involving the Exchange of Stock By SANDY MURPHY, Partner, AMY TAWNEY, Partner, and JORDAN MADDY, Associate Attorney, Bowles Rice LLP The West Virginia Legislature enacted a new law aimed at streamlining business combinations by creating an avenue that permits West Virginia companies to acquire another entity using stock as consideration without the burden and expense of registering the stock issued in the transaction. Stock-for-stock transactions have historically been attractive because they allow the acquiring company to preserve its cash. They also allow the shareholders of the target company to defer capital gains until they choose to sell their shares and to participate in the future growth and success of the combined entity. The new law should make stock-for-stock transactions even more appealing because the burden and expense associated with the registration of the securities to be issued in the transactions will be significantly reduced. During its 2025 session, the West Virginia Legislature passed House Bill 2889 (the “Bill”), which authorizes the State Commissioner of Securities (the “Commissioner”) to consider and conduct a fairness hearing upon any plan of reorganization, recapitalization or refinancing of a corporation or limited liability company organized under the laws of West Virginia or having its principal place of business within the state of West Virginia when the plan contains a proposal to issue securities in exchange for outstanding securities, claims or property interests. Prior to the passage of the Bill, such a transaction would have required the filing of a registration statement with the Securities and Exchange Commission (SEC) to register the securities being exchanged in the transaction pursuant to the Securities Act of 1933 (the “Securities Act”). The registration process is time-consuming and expensive. However, the adoption of a state fairness hearing procedure allows West Virginia corporations and limited liability companies, including bank holding companies, to rely on the exemption under Section 3(a)(10) of the Securities Act. The exemption provides that securities exchanged by an issuer are exempt from the SEC’s registration requirements where such exchange involves predominantly the exchange of securities and not cash and the exchange has been approved by a governmental entity following a fairness hearing. Thus, companies may use the fairness hearing process authorized by the Bill to avoid the burden and expense of registering securities being issued in the transaction with the SEC. This new fairness hearing process is important for mergers involving West Virginia companies where the issuance of stock is the predominant consideration in the transaction because it allows the acquiring company to avoid registration of its securities with the SEC. The consequences of filing a registration statement with the SEC are potentially significant for non-publicly traded companies. After filing a registration statement, the acquiring company becomes a public company and is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires the filing of annual reports on Form 10-K, quarterly 10 WEST VIRGINIA BANKER
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