## Facts

- Rath Packing Company was an Iowa corporation with nearly one million outstanding shares held by thousands of shareholders; the plaintiffs were minority shareholders owning more than 6,000 shares.
- Rath and Needham Packing Company executed a “Plan and Agreement of Reorganization” under which Rath would:
  - Amend its articles to increase authorized stock and issue new common and preferred shares.
  - Change its corporate name to “Rath-Needham Corporation.”
  - Assume all Needham debts and liabilities.
  - Add two Needham officers to Rath’s board.
- Under the plan, Needham would:
  - Transfer all assets to Rath.
  - Distribute the Rath shares it received to Needham shareholders.
  - Liquidate and dissolve, ceasing to exist as a separate corporation.
- At a Rath shareholder meeting, about 60.1% of Rath’s outstanding shares voted to approve the plan.
- Plaintiffs sued in equity to enjoin the transaction, alleging it was a merger in substance requiring approval by holders of two-thirds of outstanding shares under Iowa Code § 496A.70 (1962) and Rath’s articles of incorporation.
- The trial court held the plan could be approved by a majority vote and dismissed the action on the pleadings; plaintiffs appealed.

## Issues

1. Whether a transaction labeled a “reorganization,” but producing the practical effects of a merger, must comply with Iowa’s merger statute and the corporation’s charter requirements for mergers.
2. Whether approval by 60.1% of outstanding shares was sufficient when the merger statute and the articles required two-thirds approval.

## Decision

- The Iowa Supreme Court reversed the dismissal and remanded.
- The court held the plan was a de facto merger because it combined the enterprises, required Rath to assume Needham’s liabilities, and resulted in Needham’s dissolution.
- The merger statute and Rath’s charter provision requiring approval by holders of two-thirds of outstanding shares applied.
- Because only 60.1% of outstanding shares approved the plan, the attempted transaction was invalid as authorized.
- The case was remanded with directions to issue an injunction preventing implementation absent proper two-thirds approval.

## Legal Principles

- Merger voting requirements apply to de facto mergers: transactions structured as reorganizations, asset transfers, or amendments that produce the same results as a formal merger.
- Corporate management cannot avoid statutory and charter protections for shareholders by selecting a transactional form or label that would otherwise permit approval by a lower voting threshold.
- When a transaction constitutes a “fundamental change” equivalent to a merger, the supermajority vote specified by statute and the articles of incorporation is mandatory.

## Conclusion

A corporate reorganization that, in substance, merges two companies and eliminates one as a separate entity must satisfy statutory and charter merger approval requirements; a majority vote cannot validate a de facto merger where two-thirds approval is required.


Rath v. Rath Packing Co., 136 N.W.2d 410 (Iowa 1965)