Mergers and Acquisitions Flashcards
(37 cards)
Statutory acquisition
mergers and a sale of assets
NonStatutory acquisition
tender offer, open market purchase, proxy contest
Tender Offer
public offer made to all shareholders of a target corporation in which the bidder offers to purchase (at a premium) shares in the target company [hostile acquisition]
Market for Corporate Control
Market for corporation acquisitions ideology aligns incentives of the board with the incentives of the shareholders. You generally become an appealing target when the value of the stock does not represent the potential.
Requirements for Sale of All or Substantial Assets
Requires approval of sale of all or substantially all assets by BoD & majority of outstanding shares by shareholders of selling corp.
o Acquirer’s vote not needed b/c purchase of assets is ordinary biz per §141.
– No shareholder appraisal rights
Gimbel Test
“All or substantially all” requires examining if assets are
(1) quantitatively vital to corp. and
(2) qualitatively the sale would substantially affect corp’s existence or purpose (as acts not AoI) and the transaction is unusual.
(In a gray area, courts defer to requiring a shareholder vote)
Gimbel v. Signal
Signal’s shareholders challenge deal selling Signal Oil, which was approved by BoD but not shareholders, arguing sale is “substantially all assets.” Deal was only 26% assets, 41% net worth, and 15% Signal’s revenues. Signal became a conglomerate, NO relevance that it started out in Oil biz. HELD: S/h approval of Signal Oil sale not req’d b/c not substantial.
Equal Dignity Rule (Delaware)
Courts will respect the legal framing that parties put in place for their deal.
Hariton v. Arco Electric
Deal structured as sale of assets. Loral would acquire all of Arco’s assets for shares of Loral; Arco then dissolved under §275. Challenged as de facto merger which would have given Arco shareholders appraisal rights. HELD: Equal dignity rule applies. De facto merger is not a thing in Delaware.
Merger v. Consolidation
Consolidation forms a new, third entity.
Approval of Mergers
- Both BoDs of target & acquirer must approve. DGCL §251(b)
- Both majority of shareholders of target & acquirer must approve. §251(c) Except…
o Where acquirer’s AoI is unchanged AND cash only or stock of less than 20% of issued shares is transferred, no need for s/h vote by acquirer.
o Freeze-out merger (DGCL §253): Merger where acquirer already owns 90%+ of target’s outstanding shares, only acquirer’s BoD but not shareholders must vote.
o Target shareholders must always vote.
Appraisal Rights
Shareholders of the acquired corporation have the right to challenge the fair value of the transaction.
Market Out Exception
No appraisal rights if sale of assets or if shares are publicly traded before and after or firm has at least 2,000 shareholders.
Triangular Merger
Creation of special purpose vehicle to complete acquisition
Benefits of Triangular Mergers
Special purpose vehicles have debt financing benefits & decision-making process benefits b/c no acquiring shareholders to approve of transaction.
One-tiered tender offer
one step, one offer, one price.
Two-tiered tender offer
Step 1 tender offer. Step 2 is freeze-out merger of minority shareholders. First step is often higher price (so coercive).
Often leads to a takeover.
Safe Harbor for Board/Officer Transaction to have BJR
(1) Transaction approved by informed vote of independent committee or independent and informed directors
OR
(2) Approved by informed, majority vote of independent shareholders.
Safe Harbor for Controlling Shareholder Transaction to have BJR
Ab initio…
(1) Transaction approved by informed vote of independent committee w/ full authority to decide
AND
(2) Approved by informed vote of disinterested shareholders.
How can shareholders defeat cleansing mechanism?
Show that (1) voters were not independent or (2) lacked material info.
If fair dealing is present
burden shifts to Plaintiff to show lack of fairness, otherwise BJR applies.
Weinberger v. UOP
Signal already owned controlling interest of UoP as majority shareholder w/ majority control of UoP BoD. Two conflicted BoD members ran feasibility study at $24/sh, Signal later bought at $21/sh w/o informing UoP of feasibility study. Deal went through w/ UoP BoD and s/h vote. HELD: BoD breached duty of loyalty to minority shareholders b/c fair dealing requires complete candor. Material info (incl. initial appraisal at $24/sh) withheld from UoP BoD & s/hs.
o KEY DISTINCTION HERE: There is a burden shifting framework when controlling shareholders are involved. Burden of proof d/n shift here b/c UoP s/h and BoD could not have had informed vote if they were unaware of study.
Kahn v. M&F Worldwide
M&F controlled 43% of MFW and wanted to acquire rest. When controlling s/h desires merger, BJR applies as standard of review only if ab initio:
(1) Merger is conditioned on approval by both special committee and majority of minority stockholders;
(2) Special committee is independent;
(3) Special committee can freely select its own advisors & say no definitively;
(4) Special committee meets its duty of care in negotiating a fair price;
(5) Vote of minority is informed; AND
(6) No coercion of the minority.
Corwin v. KKR Financial Holdings
expands MFW framework to ALL corporate transactions. If BoD structure deal to ab initio be conditioned on independent committee or majority of disinterested directors & disinterested shareholders, BJR applies. If BoD structure deal for only one, then entire fairness.
