book chapter 3 (class 2)

Question 1

the legal requirements governing M&As in the United States differ depending on what?

Answer 1

whether a transaction is a friendly merger or a hostile deal

Question 2

legal workings of a Friendly merger—cash financed

Answer 2

The bidder is required to file a proxy statement with the Securities and Exchange Commission (SEC) that describes the deal

–> Usually, the bidder has to file a preliminary statement first

–> If the SEC makes comments, the preliminary statement may be changed before it is finalized

The finalized proxy statement is then mailed to shareholders along with a proxy card that they fill out and return

–> Following this, the deal has to be approved at a shareholders’ meeting, whereupon the deal can then be closed

Question 3

legal workings of a Friendly merger—stock financed

Answer 3

process is similar to a cash-financed merger except that the securities used to purchase target shares have to be registered

Question 4

legal workings of a Hostile deal—cash financed

Answer 4

The bidder initiates the tender offer by disseminating tender offer materials to target shareholders

Such offers have to be made pursuant to the requirements of the Williams Act

unlike the friendly transactions just described, the SEC does not have an opportunity to comment on the materials that are sent to shareholders prior to their dissemination

–> can do so during the minimum offer period

Question 5

legal workings of a Hostile deal—stock tender offer

Answer 5

The bidder first needs to submit a registration statement and wait until it is declared effective prior to submitting tender offer materials to shareholders

The SEC may have comments on the preliminary registration state- ment that have to be resolved before the statement can be considered effective

Once this is done, the process proceeds similar to a cash tender offer

Question 6

The three main groups of laws in M&A

Answer 6

Securities Laws

state corporation laws

antitrust laws

Question 7

Securities Laws

Answer 7

most important starting part is the filing of an 8K, followed by a detailed discussion of the Williams Act

Question 8

filing of an 8K

Answer 8

must be made within 15 calendar days after the occurrence of certain specific events

–> Such events include the acquisition and disposition of a significant amount of assets, including companies

The filing will include information such as the following:

◾ Description of the assets acquired or disposed of

◾ Nature and amount of consideration given or received

◾ Identity of the persons from whom the assets were acquired

◾ In the case of an acquisition, the source of the funds used to finance the purchase

◾ Financial statements of the business acquired

Question 9

when are acquisitions are determined to involve a significant amount of assets?

Answer 9

if the equity interest in the assets being acquired or the amount paid or received in an acquisition or disposition exceeds 10% of the total book assets of the registrant and its subsidiaries

Question 10

Filing of an S-4

Answer 10

we do this to so that a company can register new stock used to acquire a target shares by filing a disclosure form with the SEC

provides a substantial amount of information for shareholders to review to learn about the purposes of the deal

In most stock-for-stock transactions, the acquirer and target will file a joint proxy statement/prospectus within the Form S-4

NYSE and NASDAQ rules, as well as most state corporation laws, require that when a company issues more than 20% of its outstanding shares to acquire a target, it must receive the approval of its shareholders

Question 11

The Williams Act

Answer 11

one of the most important pieces of securities legislation in the field of M&A

Question 12

The Williams Act’s four major objectives

Answer 12

1. To regulate tender offers

–> Before the Williams Act was passed, stockholders of target companies often were stampeded into tendering their shares quickly to avoid receiving less advantageous terms

2. To provide procedures and disclosure requirements for acquisitions

–> A proper valuation of the acquiring firm’s shares depends on the availability of detailed financial data

3. To provide share holders with time to make informed decisions regarding tender offers
4. To increase confidence in securities markets

–> securities markets can attract more capital

Question 13

Section 13(d) of the Williams Act

Answer 13

provides an early warning system for stockholders and target management

–> alerting them to the possibility that a threat for control may soon occur

provides for disclosure of a buyer’s stockholdings, whether they have come from open-market purchases, tender offers, or private purchases, when these reach 5% of the target firm’s total common stock outstanding

provides for the filing of a Schedule 13D with the SEC and any exchange on which the issuer’s stock is traded, as well as the issuer

Question 14

is the disclosure of the required information, pursuant to the rules of Section 13(d), necessary even when there is no tender offer?

Answer 14

yeee

The buyer who intends to take control of a corporation must disclose the required information following the attainment of a 5% holding in the target

The buyer makes this disclosure by filing a Schedule 13D

Question 15

Schedule 13D of the Williams Act requires the disclosure of which information?

Answer 15

The name and address of the issuing firm and the type of securities to be acquired

Detailed information on the background of the individual filing the information, including any past criminal violations

The number of shares actually owned

The purpose of the transaction

The source of the funds used to finance the acquisition of the firm’s stock

–> ex: reliance on debt

the bidder must disclose all transactions in the target’s shares that occurred over the 60-day period prior to the offer

Question 16

Amendments Required under Section 13(d)(2) of the Williams Act?

Answer 16

requires the “prompt” filing by the issuer when there has been a “material change,”

–> ex: acquiring an additional 1%, in the facts that were set forth in Schedule 13D

Question 17

Remedies for Failure to Comply with Section 13(d)

Answer 17

either shareholders or the target company may sue for damages

Parties that are found guilty of violating Section 13(d) may face fines and possible disgorgement

Question 18

section 13(d) of William’s is designed to protect target shareholders’ rights or interest of the target company? why?

Answer 18

The courts are more mindful of the target’s shareholders’ rights under Section 13(d) than those of the target corporation itself

because this section of the statute was designed for their benefit as opposed to protecting the interests of the target corporation

more concerned about making sure the proper disclosure is provided to share- holders as opposed to standing in the way of an acquisition

Question 19

how can the court react if a company acquires derivatives in order to no file section 13(d) pf William’s?

Answer 19

they gonna not take it well and roast them

Question 20

Schedule 13G of William’s

Answer 20

investors, who acquire 5% or more of a company’s shares but who did not acquire more than 2% of those shares in the previous 12 months and who have no interest in taking control of the firm are required to file the much less detailed Schedule 13G

–> These shareowners are sometimes called 5% beneficial owners

–> SEC are not as strict with them

must be filed on February 14 of each year

Question 21

shareholders who were eligible to the Schedule 13G of William’s but now want to control the company ant to do what?

Answer 21

they must file a 13D and cannot take any actions, such as those that may have been described in the 13D filing, until the passage of 10 days

Question 22

Section 14(d) of William’s

Answer 22

provides for disclosure of various information in tender offer

Both Sections 13(d) and 14(d) apply only to equity securities registered with the SEC

–> both apply to tender offers that, if successful, would result in the owner possessing 5% or more of a class of equity securities

Question 23

Schedule TO of William’s

Answer 23

combination of 14D-1 and 13E-4

requires the bidder to disclose various information, such as the specific shares to be acquired, the identity and background of the bidder, the terms and purpose of the transaction, and the source of funds to be used

the bidder has to include the last two years of its financial statements

Question 24

an exchange offer

Answer 24

When the offer is a stock-for-stock, or a cash and stock combination for stock trans- action

Question 25

Withdrawal Rights

Answer 25

Shareholders may withdraw their shares any time during the entire period the offer remains open

The goal of this rule is to allow shareholders sufficient time to evaluate the offer—or offers

Question 26

A partial tender offe

Answer 26

one in which there is a bid for less than 100%, such as a bid for 51%, which usually affords the acquirer control of the target

Question 27

Two-tiered tender offers

Answer 27

are bids that provide one type of compensation for a first tier, such as the first 51%, other compensation for the remaining shares

Question 28

Definition of a Tender Offer

Answer 28

The Williams Act is purposefully vague and does not offer a clear definition of a tender offer

Question 29

Eight Factor Test of tender offer

Answer 29

1. There is active and widespread solicitation of public shareholders for shares of an issuer
2. Solicitation is made for a substantial percentage of an issuer’s stock
3. Offer to purchase is made at a premium over the prevailing market price
4. Terms of the offer are firm rather than negotiated.
5. Offer is contingent on the tender of a fixed number of shares and possibly specifying
   a maximum number of shares
6. Offer is open for only a limited time period
7. Offeree is subject to pressure to sell stock
8. There are public announcements of a purchasing program that precede or are coincident with a rapid accumulation of shares

A transaction need not satisfy all eight factors in order to be considered a tender offe

Question 30

Materials That Shareholders Receive

Answer 30

an Offer to Purchase

–> sets forth the terms of the offer

–> Chief among these terms are the number of shares to be purchased, the offer price, and the length of time the offer will remain open

a Letter of Transmittal

Question 31

Method of Tendering Shares

Answer 31

through an intermediary, such as a commercial bank or trust company, which is referred to as the paying agent

submit their shares to the paying agent in exchange for cash or securities, in accordance with the terms of the offer

The agent accumulates the shares but does not pay the stockholders until the offer expires

Question 32

Changes in the Tender Offer

Answer 32

The Williams Act allows a modification in the offer period if there is a material change in the terms of the offer

Question 33

Payment Following Completion of the Offer

Answer 33

tendered shares must be either paid for promptly after the offer is terminated or returned to the shareholders

Question 34

Mini-tender offers

Answer 34

bids for less than 5% of a company’s stock

much less regulated as bidders,

are not required to comply with the disclosure requirements for larger tender offers

Question 35

Taking Control after a Successful Tender Offer

Answer 35

the target and the bidder agree that the bidder may elect a majority of the board of directors

allows the bidder to take control of the board of directors without calling a meeting of the shareholders and soliciting their voting approval

Question 36

antitakeover defenses

Answer 36

limit the ability of a bidder to appoint members to the board

Question 37

Delisting the Target

Answer 37

Following a takeover and merger of a target into the bidder, a bidder/target may then file to have the target’s shares delisted from the exchanges on which it was traded

A Form 25 then needs to be filed with and approved by the SEC

Question 38

true or false

Because the law was designed to give stockholders time to carefully consider all relevant alternatives, an extension of the offer period is possible when there is a competing offer

Answer 38

true

10 days

Question 39

Applicability of U.S. Tender Offer Rules to Takeovers of Non-U.S. Companies

Answer 39

The U.S. tender offer rules apply to U.S. companies when they make bids for the shares of foreign companies if the target’s shares are registered in the United States

Question 40

which takeovers can a U.S. president halt?

Answer 40

takeovers that are determined to be threats to U.S. national security

Question 41

the UK’s City Code

Answer 41

in M&As all shareholders be treated equally and fairly

attempts to prevent target firms from adopting antitakeover measures without prior shareholder approval

The target’s shareholders must approve antitakeover measures, such as supermajority provisions or the issuance of options to be given to friendly parties

Question 42

The European Takeover Directive

EU

Answer 42

regulates takeovers in Europe

In order to protect minority shareholders

–> contains a requirement to make a mandatory offer after a bidder purchases a certain number of shares

Question 43

true or false

In France, takeover activity is more common than in most other nations in continental Europe

Answer 43

true

Question 44

why were French takeover rules amended to establish a minimum bid threshold of 50%

Answer 44

to prevent creeping bids

–> If a bid fails to attain the 50% minimum, it lapses

Question 45

france’s rules for M&A favor whom?

Answer 45

long-term shareholders

Question 46

in which European country are takeovers more common?

Answer 46

France

Question 47

IS Germany more accepting or hostile to takeover bids?

Answer 47

more hostile towards them

Question 48

Holland’s “put up or shut up”

Answer 48

This rule allows the Netherlands authority for financial markets (the AMF) to be able to require a potential bidder, one that has made public statements that could be construed as indicative of a takeover planning, to make a definitive statement to the public market as to its intentions

If the presumed bidder denies interest in a takeover, that potential bidder is prohibited from making a takeover bid for six months

Question 49

Italian takeover rules divide tender offers into voluntary and mandatory offers

What’s a voluntary bid?

Answer 49

can be either hostile or friendly

have an offer period of between 15 and 40 trading days

The bidder determines the prices

Question 50

Italian takeover rules divide tender offers into voluntary and mandatory offers

What’s a mandatory bid?

Answer 50

required when the bidder acquires enough shares to gain control of a certain percentage of the target’s board

Mandatory bids have an offer period of between 15 and 25 trading days

the price is determined by a best price rule

Question 51

The business judgment rule

Answer 51

standard by which directors of corporations are judged when they exercise their fiduciary duties in the course of an attempted takeover

it is presumed that directors act in a manner that is consistent with their fiduciary obligations to shareholders

Question 52

Delaware law

Answer 52

irectors’ duties pursuant to the business judgment rule are that they should manage the affairs of the company by keeping three key duties in mind

1. They have a duty of loyalty.
2. They have to demonstrate care for the interests of shareholders
3. They should carry out their duties in a manner that is in the best interests of the
   corporation and its shareholders