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FINA 415: Mergers and Acquisitions > Class 2 powerpoint > Flashcards

Class 2 powerpoint Flashcards

1
Q

M and A information in an 8K form

A

Description of the assets acquired or disposed of

Nature or amount of consideration given or received

Identity of the persons from whom the assets were acquired

Acquisitions only: the sources of funds used to finance the purchase

Financial statements of the business acquired

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2
Q

when do acquisitions have a signification amount of assets?

A

if the equity interests therein exceed 10% of the total book value

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3
Q

Form S-4

A

used if new stock will be issued to acquire a target

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4
Q

when must a firm receive approval from its shareholders when using outstanding shares to make the deal?

A

When a firm issues more than 20% of its outstanding shares to make the deal

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5
Q

In stock-for-stock transactions, how do the acquirer and target cooperate?

A

by filing a joint proxy statement/prospectus within the Form S-4

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6
Q

according to the S-4, if shareholders approve, when does the merger becomes valid?

A

immediately after the filing of a Certificate of Merger in the US state where the target is incorporated

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7
Q

The Williams Act Origin

A

The Securities Act of 1933

The Securities Exchange Act of 1934

The two acts above curtail some abuses observed in the Crash of 1929

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8
Q

The Securities Act of 1933

A

imposes the filing of a detailed disclosure statement when a firm goes public

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9
Q

The Securities Exchange Act of 1934

A

prohibits specific activities of the securities industry such as wash sales and the churning of costumer accounts

–> The Williams Act adds new subsections to the Securities Exchange Act of 1934

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10
Q

The Williams Act

Objectives

A

To regulate tender offers

To provide procedures and disclosure requirements for acquisitions

To provide shareholders with time to make informed decisions regarding tender offers

To increase confidence in securities markets

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11
Q

The Williams Act

Section 13(d)

A

requires that a buyer discloses her share holdings

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12
Q

The Williams Act

Schedule 13D

A

Name and address of the issuing firm and type of securities to be acquired

Detailed information on the background of the individual filing the information (e.g., criminal background checks)

Number of shares actually owned

Purpose of the transaction (i.e., investment or control of the firm)

Source of funds used to finance the acquisition of the firm’s shares (i.e., disclosure of capital structure, and by extension leverage if applicable)

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13
Q

The Williams Act

Section 13(d)(2)

A

imposes prompt filing, with the SEC and the exchanges by the issuer when a material change takes place (i.e., acquisition of +1% shares)

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14
Q

The Williams Act

Schedule 13G

A

can be filed by investors who acquire 5% or more of a company’s shares, but who did not have more than 2% in the previous 12 months, and have no intention to take control of the firm

requires less detailed information; yet if the investor’s context change, Schedule 13D must be used

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15
Q

The Williams Act

Minimum Offer Period

A

A tender offer must remain open for at least 20 business days (the minimum offer period)

–> the acquiring firm must accept all shares that are tendered

–> The acquirer may walk away from the deal if it does not receive the total number of shares it requested in the terms of the tender offer

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16
Q

Exchange Offer

A

a stock-for-stock offer, or a cash and stock combination for stock transaction

(no shares can be purchased until 20 days after the offer is filed with the SEC)

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17
Q

Definition of a Tender Offer

A

the Williams Act has no clear definition

the court concludes that open market purchases with no deadline and for which no premium was offered do not constitute a tender offer

the US District Court for the Second Circuit establishes the Eight Factor Test

oooor

the totally of the circumstances test (i.e., it focuses on whether offerees would be put at an informational disadvantage if official tender offer procedures were not followed)

a tender offer exists if:

–> (i) a bidder publicly announces its intention to acquire a substantial block of a target’s shares for the sake of firm control;

–> (ii) a substantial accumulation of the target’s stocks by the bidder via open-market or privately negotiated purchases takes place

18
Q

The Eight Factor Test

A
  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 exist public announcements of a purchasing program that precede or are coincident with rapid accumulation of shares
19
Q

who handles Takeovers considered as threat to the US national security

A

the Committee on Foreign Investment to the United States (CFIUS)

(note: such deals can be halted by the US president)

20
Q

To obtain quorum, firms solicit what and from whom?

who else can do that and why?

A

proxies from shareholders

Bidders trying to take over a firm may solicit proxies from shareholders as well

–> with Section 14(a) of the Securities Exchange Act

21
Q

Section 14(a) of the Securities Exchange Act

A

regulates solicitations

22
Q

In the UK, the City Code of Takeovers and Mergers preconizes

A

preconizes that in M&A all shareholders be treated equally and fairly

23
Q

in the UK, Investors having de facto control (i.e., 30% or more of firm’s shares) must bid for the remaining shares which price?

A

at the highest price paid for the shares

24
Q

Hostile bids are more likely to succeed in the UK or the US? why?

A

because shareholders have the right to oust board directors at any time

25
Q

The business judgment rule in the U.S.

A

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

26
Q

fiduciary duty under the Delaware law

A

Directors have a duty of loyalty

Directors have to demonstrate care for the interests of shareholders

Directors should execute their duties in best interests of the corporation and its owners

27
Q

In Singh v. Attenborough, director defendants can get early dismissal of claims against them if what happens?

A

if the sale was done orderly

28
Q

Unocal Standard

A

In Unocal v. Mesa Petroleum, the Delaware Supreme Court reviews a self-tender offer in which the target firm made a tender offer for itself in competition with the offer filed by the bidder (i.e., a board-made antitakeover measure)

–> leads to the Unocal Standard

–> Reasonableness test

–> Proportionality test

29
Q

Reasonableness test

A

the board must show that their actions were reasonable relative to the perceived beliefs about the danger to their corporate policies

Basically, it is a belief based on trust

30
Q

Proportionality test

A

the board must show that their defence was proportional to the magnitude of the perceived danger to their policies

31
Q

Revlon Duties

A

In Revlon, Inc. v. MacAndrews and Forbes Holdings, the Delaware Supreme Court determines that specific antitakeover defenses, namely a lockup option and a no-shop provision, discourage rather than promote the auction process

–> The precedent leads to the Revlon Duties

—-> When the sale or breakup of the firm is inevitable, directors have the duty to move their actions away from preserving the corporation and its strategies to actions promoting shareholders’ wealth

—-> Defences that undermine the auction process are not valid

32
Q

why does the US Supreme Court rule that the Illinois Business Take over Act is trash?

which case do we see it

A

because it violates the commerce clause of the US Constitution

In Edgar v. MITE

33
Q

what does then the US Supreme Court think of the Indiana antitakeover law?

what does this cause?

which case do we see it?

A

constitutional

shareholders are allowed to vote on whether a buyer of a controlling interest can exercise her voting rights

In Dynamics v. CTS

34
Q

In Amanda Acquisition Corp. v. Universal Foods Corp., what does the US court think of Amanda

A

refuses to hear Amanda on the just-say-no defense as per Wisconsin Law

35
Q

Components of Second-Generation Laws components

state antitakeover laws

A

Fair price provision

Business combination provision

Control share provision

Cash-out statute

36
Q

Fair price provision

A

in a successful tender offer, all shareholders who do not decide to sell will receive the same price as those who turn the offer down

37
Q

Business combination provision

A

it is designed to avoid the conversion of local firms with a low-risk capital structure into riskier leveraged ones

(i.e., prevention of leveraged hostile takeovers)

38
Q

Control share provision

A

curbs creeping acquisitions above a certain value, beyond which the approval of the other owners is required

39
Q

Cash-out statute

A

if a bidder buys a certain percentage of stocks in a target, she is required to buy the remainder at the same initial terms

40
Q

In Pennsylvania, firms lost how much during the time its antitakeover law was being considered and adopted

A

$4 billion

41
Q

overall effects of State antitakeover laws

A

do not seem to deter takeovers

improved the bargain power of targets, and ultimately increased the takeover premium

The passage of state antitakeover laws entailed in a 28-bp increase in the cost of debt

42
Q

The Herfindahl-Hirschman Index (HHI)

A

concentration measure

HHI = E(S^2)

FINA 415: Mergers and Acquisitions (11 decks)

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