Chapter 41: Mergers and Takeovers Clarkson  Miller  Cross Chapter 41: Mergers and Takeovers

§1: Merger, Consolidation, and Share Exchange Merger: legal combination of two or more corporations (A & B), after which only one company remains (A), with all of B’s rights and obligations.

Merger, Consolidation, and Share Exchange Consolidation: when two or more corporations (A & B) combine to create a new corporation (C), and A and B cease to exist.

Merger, Consolidation, and Share Exchange Some or all the shares of one corporation are exchanged for some or all of the shares of another corporation.

Merger, Consolidation, and Share Exchange Procedures. Board of Directors of each corporation involved must approve the merger plan. Majority of shareholders of each corporation must approve. 

Merger, Consolidation, and Share Exchange Procedures. Then, documents are filed with Secretary of State who issues a certificate of merger.

Merger, Consolidation, and Share Exchange Short-Form Mergers. For “Parent-Subsidiary” Merger. No approval of shareholders needed. But parent must own at least 90% of each class of stock of the subsidiary corporation. 

Merger, Consolidation, and Share Exchange Short-Form Mergers. Board of parent corporation approves and new articles filed. Shareholder Approval. For merger, consolidation, sale of most of corporation’s assets not in the ordinary course of business, 

Merger, Consolidation, and Share Exchange Shareholder Approval. … adverse amendments to the articles of incorporation. Appraisal Rights. Shareholder has the right to dissent from merger. 

Merger, Consolidation, and Share Exchange Appraisal Rights. Shareholder has the right to be “bought out” of his/her shares. Procedures: corporation notifies shareholders, who can demand fair market value appraisal. 

Merger, Consolidation, and Share Exchange Appraisal Rights. Appraisal Rights and Shareholders Status: dissenting shareholder looses voting rights.

§2: Purchase of Assets The acquiring corporation extends its ownership and control over the physical assets of another company. Shareholders of acquiring corporation do not need to approve. 

Purchase of Assets Government Restrictions. US DOJ and FTC have guidelines that significantly constrain and often prohibit mergers that could result from a purchase of assets.

Purchase of Assets Successor Liability in Purchases of Assets. Generally, the purchasing corporation is not automatically responsible for the liabilities of the selling company. 

Purchase of Assets Successor Liability. Purchasing company assumes both liabilities and assets if: Acquiring corporation impliedly or expressly assumes the liabilities. Sale amounts to what is really a merger or consolidation. 

Purchase of Assets Successor Liability. Purchasing company assumes both liabilities and assets if: Purchaser continues the seller’s business and retains the same personnel. 

Purchase of Assets Successor Liability. Purchasing company assumes both liabilities and assets if: Sale is fraudulently executed to escape liability. CASE 41.1 American Standard, Inc. v. OakFabco, Inc. (2010).

§3: Purchase of Stock Common alternative to merger or consolidation. Purchase of controlling interest (51%) of a “target” corporation’s stock (“takeover”) gives purchasing corporation controlling interest in the target. 

Purchase of Stock Tender Offers. A publicly advertised offer addressed to all shareholders of the target is called a tender offer. Usually higher than market value but conditioned on the acquisition of a certain % of shares. 

Purchase of Stock Tender Offers. Application of Securities Laws. Can be in exchange for aggressor's stock. Application of Securities Laws. The SEC strictly regulates tender offers.

Purchase of Stock Responses to Tender Offers. Directors may view the offer as favorable or unfavorable. If favorable, then a recommendation is made to the shareholders. 

Purchase of Stock Takeover Defenses and Directors’ Fiduciary Duties. Defense tactics must be reasonable and directors must not breach their fiduciary duties. Actions judged by the business judgment rule. 

Purchase of Stock Takeover Defenses and Directors’ Fiduciary Duties. CASE 41.2 Air Products and Chemicals, Inc. v. Airgas, Inc. (2011).

Tender Offer Terminology

§4: Termination Voluntary Dissolution. Shareholders can initiate dissolution or the board can initiate by submitting a proposal to the shareholders.

Termination Involuntary Dissolution. State can dissolve a corporation for failure to comply with state regulations. Court can dissolve a corporation if there is a deadlock, the acts of directors are fraudulent or illegal.

Termination Involuntary Dissolution. Court can dissolve if assets are being misapplied or wasted. Shareholders are deadlocked and failed to resolve.

Termination Winding Up. Voluntary Dissolution: Board liquidates and acts as trustees of assets. Court will appoint a receiver if board refuses; or creditors want a receiver. 

Termination Winding Up. Involuntary Dissolution: court appoints receiver. Liquidated assets first to creditors, then shareholders.

§ 5: Major Business Forms Compared

Major Business Forms Compared

Major Business Forms Compared

Major Business Forms Compared