Chapter 13: cash out M&A

Question 1

freeze out

Answer 1

buys out minority to delist company

Question 2

one step freeze out (long-form)

Answer 2

force min to sell shares for cash
board + SH approval required
“entire fairness” applies

Question 3

two step freeze out (tender offer + short form)

Answer 3

step 1: tender offer (+90% shares)
step 2: short-form merger (no SH vote)
if tender offer not coercive -> BJR applies

Question 4

Problems with freeze out

Answer 4

controlling SH undervalued shares
min accept unfair offer

Question 5

entire fairness standard

Answer 5

fair dealing (process) fair price (substance)

Question 6

2 procedural safeguard

Answer 6

independent committee (Weinberger VS UOP)
MoM, burden to plaintiff (Rosenblatt VS Getty oil)

Question 7

Kahn VS Lynch

Answer 7

freeze-out merger are subject to entire fairness unless procedural safeguard are in place

Question 8

Solomon VS Pathe (1996)

Answer 8

tender offers not subject to entire fairness since min are free to reject (exception if coercion or misleading diclosure)

Question 9

re Siliconix (2001)

Answer 9

even without independent committee -> tender offer escape entire fairness review

Question 10

Glassman vs Unocal (2001)

Answer 10

SF merger without tender offer
short-form merger exempt from entire fairness since min protection = appraisal rights -> loophole

Question 11

re Pure Resources (2002)

Answer 11

fix loophole -> allow BJR for 2-step merger if
- MoM approval (nonwaivable)
- identical terms (tender and merger)
- no coercion

Question 12

MFW (2014)

Answer 12

BJR applied as a standard if
- approval my independent committee
- MoM approval

Question 13

regulatory competition EU

Answer 13

prohibit cash-out merger (third council directive): SH must at least receive some shares (cash limited to 10%)
Takeover directive (art. 15): at least 90% ownership (listed) to force out

Question 14

regulatory competition US

Answer 14

allows cash-out merger (90% ownership)
SF dont require to merge
focus on fair price

Question 15

regulatory competition UK

Answer 15

sanctioned cash out min -> require MoM

Question 16

regulatory competition germany

Answer 16

95% ownership -> squeeze out via SH meeting, no tender offer but indep expert need to approve fairness of the cash out price

Question 17

Litigation

Answer 17

EU: less common
US: more incentive to private

Question 18

anti-takeover

Answer 18

EU: hostile takeover harder (90-95% ownership)
US: takeover friendly: freeze out facilitate MBO/LBO

Question 19

SH rights

Answer 19

EU: strong property right
US: fair compensation is sufficient

Question 20

(+) freeze out merger

Answer 20

↓ min SH conflict -> ↓ regulatory cost
majority invest more

Question 21

(-) freeze out merger

Answer 21

minority oppression
coercion (prisoner dilemma)
market price dont reflect value of corp