Chapter 38 Corporate Acquisitions and Multinational Corporations

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Proxy Solicitation Shareholders have right to vote on the election of directors, mergers, and charter amendments They can exercise their power to vote either in person or by proxy Proxy card: Written document signed by a shareholder that authorizes another person to vote the shareholder’s shares 38-2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Federal Proxy Rules Section 14(a) of Securities Exchange Act of 1934 – SEC regulates the solicitation of proxies SEC requires party seeking proxy to prepare and file Proxy Statement fully describing Matter for which the proxy is being solicited Who is soliciting the proxy Any other pertinent information 38-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Antifraud Provision Section 14(a) prohibits misrepresentations or omissions of a material fact in proxy materials SEC, U.S. Justice Department, or shareholders who are injured by the misrepresentation or omission may Sue the wrongdoer Both criminal and civil liability possible Court may also order new election 38-4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Proxy Contests Incumbent directors: Current directors of the corporation Insurgent shareholders: Shareholders who propose a slate of directors to replace the incumbent directors Proxy contest: A contest in which opposing factions of shareholders and managers solicit proxies from other shareholders The side that receives the greatest number of votes wins the proxy contest 38-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Shareholder Resolution A resolution that a shareholder who meets certain ownership requirements May submit to other shareholders for a vote Many shareholder resolutions concern social issues Most shareholder resolutions have a slim chance of being enacted—large-scale investors usually support management 38-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Mergers Merger: A situation in which one corporation is absorbed into another corporation and ceases to exist Surviving corporation: The corporation that continues to exist after a merger Merged corporation: The corporation that is absorbed in the merger and ceases to exist after the merger 38-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Exhibit 38.1: Merger 38-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Share Exchange A situation in which one corporation acquires all the shares of another corporation Both corporations retain their separate legal existence Parent corporation: The corporation that owns the shares of the subsidiary corporation in a share exchange Subsidiary corporation: The corporation that is owned by the parent corporation in a share exchange 38-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Exhibit 38.2: Share Exchange 38-10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Required Approvals for Merger or Share Exchange Recommendation of board of directors of each corporation Affirmative vote of the majority of voting shares of each corporation Approved articles of merger or articles share exchange filed with secretary of state State issues a certificate of merger or share exchange to the surviving corporation 38-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Short-form Merger A merger between a parent corporation and a subsidiary corporation Does not require the approval of the shareholders of either corporation Does not require the approval of the board of directors of the subsidiary corporation 38-12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Sale or Lease of Assets A corporation may sell, lease, or otherwise dispose of all or substantially all of its property Requires Recommendation of the board of directors Affirmative vote of the majority of the voting shares of the selling corporation 38-13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Dissenting Shareholder Appraisal Rights The rights of shareholders who object to A proposed merger Share exchange Sale or lease of all or substantially all of the property of a corporation Statutory right to have their shares valued by the court and receive cash payment of this value from the corporation 38-14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Tender Offer Tender offeror: The party that makes a tender offer Tender offer: An offer that an acquirer makes directly to a target corporation’s shareholders in an effort to acquire the target corporation Target corporation: The corporation that is proposed to be acquired in a tender offer situation 38-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Exhibit 38.3: Tender Offer 38-16 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Williams Act An amendment to the Securities Exchange Act of 1934 Made in 1968—specifically regulates tender offers Establishes certain disclosure requirements and antifraud provisions 38-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Tender Offer Rules Duration—Offer cannot be closed before 20 business days after commencement Tender offeror increases number of shares/payment – Offer must be extended for 10 business days Fair price rule: Stipulates that any increase in price paid for shares tendered must be offered to all shareholders Pro rata rule: If too many shares are tendered – purchase must be made on a pro rata basis 38-18 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Antifraud Provision Section 14(e) of the Williams Act Prohibits fraudulent, deceptive, and manipulative practices in connection with a tender offer Violations may result in The SEC bringing civil charges The Justice Department bringing criminal charges 38-19 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Fighting a Tender Offer Persuasion of shareholders—media campaigns Delaying lawsuits Selling a crown jewel—target corporation’s valuable asset that the tender offeror wants to acquire Adopting a poison pill—defensive strategies that are built into the target corporation’s Articles of incorporation Corporate bylaws Contracts and leases 38-20 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Fighting a Tender Offer White knight merger—mergers with friendly parties Pac-Man tender offer—a reverse tender offer Issuing additional stock—increases the number of outstanding shares Creating an employee stock ownership plan Flip-over and flip-in plans—shareholders of target corporation convert their shares for greater number of Shares of the acquiring corporation (flip-over) Debt securities of the target company (flip-in) 38-21 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Fighting a Tender Offer Greenmail and standstill agreements Greenmail: Purchase by a target corporation of its stock from an actual or perceived tender offeror at a premium Standstill agreement—Agreement of the tender offeror to abandon its tender offer and not purchase any additional stock 38-22 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Business Judgment Rule Protects the decisions of a board of directors that Acts on an informed basis In good faith In the honest belief that the action taken was in the best interests of the corporation and its shareholders Defensive strategies employed judged by this rule 38-23 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

State Antitakeover Statutes Enacted by a state legislature Protects against the hostile takeover of corporations incorporated in or doing business in the state Delaware antitakeover statute Provides that an acquirer of a Delaware corporation (15 percent or more of shares) cannot complete a merger with the acquired corporation for three years 38-24 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Multinational Corporations A corporation that operates in more than one country Also called a transnational corporation 38-25 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

International Law: International Branch Office 38-26 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

International Law: International Subsidiary Corporation 38-27 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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