© 2010 Pearson Education, Inc., publishing as Prentice-Hall 1 CORPORATE ACQUISITIONS AND MULTINATIONAL CORPORATIONS © 2010 Pearson Education, Inc., publishing as Prentice-Hall CHAPTER 38

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 2 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 3 Federal Proxy Rules Under 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 4 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.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 5 Proxy Contests Opposing factions of shareholders may challenge management in a proxy contest. The side that receives greatest number of votes wins the proxy contest. Management must supply list of shareholders to dissenting side or mail proxy solicitation materials for them.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 6 Shareholder Resolution Submitted by a shareholder who meets certain ownership requirements to other shareholders for a vote. Many resolutions concern social matters. –E.g., environmental or workplace standards issues. May be included with proxy materials. –Even if management opposes, it must be included in proxy materials if pertains to business, concerns policy issue, and does not concern payment of dividends.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 7 Friendly Transactions Merger Sale of Assets Share Exchange

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 8 Mergers One corporation is absorbed into another corporation and ceases to exist. The surviving corporation gains all the rights, privileges, powers, duties, obligations, and liabilities of the merged corporation. Shareholders of the merged corporation receive stock or securities of the surviving corporation.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 9 Merger += Corporation A Corporation B Corporation A

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 10 Share Exchange One corporation acquires all the shares of another corporation. Both corporations retain their separate legal existence. Parent corporation owns all or most of the shares of the subsidiary corporation.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 11 Share Exchange (continued) + = Corporation A Corporation B Corporation A (parent corporation) Corporation B (subsidiary corporation) A owns B

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 12 Required Approvals for Merger or Share Exchange Recommendation of board of directors of each corporation, and Affirmative vote of the majority of voting shares of each corporation. Approved articles of merger or share exchange filed with secretary of state.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 13 Short-form Merger Merger between a parent corporation and a subsidiary corporation. Does not require the vote of the shareholders of either corporation or the board of directors of the subsidiary corporation. Can occur when the parent corporation owns 90 percent (or more) of the outstanding stock of the subsidiary corporation.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 14 Sale or Lease of Assets A corporation may sell, lease, or otherwise dispose of all or substantially all of its property. Requires: –Recommendation of board of directors, and –Affirmative vote of the majority of the voting shares of the selling corporation.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 15 Dissenting Shareholder Appraisal Rights Shareholders who object to a proposed merger, share exchange, or sale or lease of all or substantially all of the property of a corporation may: –Have their shares valued by the court. –Receive cash payment of this value from the corporation. –Only recourse for these shareholders.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 16 Tender Offer Hostile transaction – Board of target corporation may oppose. Acquirer makes offer of merger or acquisition directly to target corporation’s shareholders. Offeror’s board of directors must approve the offer. The tendering corporation and the target corporation retain their separate legal status.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 17 Tender Offer (continued) Tender Offeror Target Corporation Shareholders Tender offer is made to the shareholders of the target corporation. The tender offeror offers to purchase their shares in the target corporation.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 18 Williams Act (1968) Amendment to the Securities Exchange Act of Specifically regulates all tender offers. Establishes certain disclosure requirements and antifraud provisions.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 19 Williams Act Tender Offer Rules Offeror need not disclose information to management of target company or SEC before offer is made. Rules on duration of offer – at least 20 business days. Fair Price Rule – Any increase in price paid for shares tendered must be extended to all shareholders. Pro Rata Rule – shares must be purchased on pro rata basis if too many shares are tendered.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 20 Antifraud Provision Williams Act prohibits fraudulent, deceptive, and manipulative practices in connection with a tender offer. Violations may result in civil charges brought by the SEC or criminal charges brought by the Justice Department, or a civil action brought by shareholders.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 21 Fighting a Tender Offer Persuasion of Shareholders Delaying Lawsuits Selling a Crown Jewel Adopting a Poison Pill White Knight Merger Pac-Man (or reverse) Tender Offer Persuasion of Shareholders Delaying Lawsuits Selling a Crown Jewel Adopting a Poison Pill White Knight Merger Pac-Man (or reverse) Tender Offer Issuing Additional Stock Creating an Employee Stock Ownership Plan (ESOP) Flip-over and Flip-in Rights Plans Greenmail and Standstill Agreements Issuing Additional Stock Creating an Employee Stock Ownership Plan (ESOP) Flip-over and Flip-in Rights Plans Greenmail and Standstill Agreements

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 22 Business Judgment Rule Protects decisions of the board of directors, if they act on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the corporation and the shareholders. Defensive strategies employed judged by this rule.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 23 State Antitakeover Statutes Aimed at protecting corporations incorporated in or doing business within the state from hostile takeovers. These statutes lawful if: –Do not conflict with Williams Act, and –Do not unduly burden interstate commerce in violation of the Commerce Clause of the U.S. Constitution.

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 24 Multinational Corporations Corporations that operate in many countries through: –Branch offices –Subsidiary corporations –Agents –Business alliances –Strategic partnerships –Franchising

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 25 Branch Office

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 26 International Subsidiary Corporation

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 27 Exon-Florio Law (1988) President of U.S. must suspend, prohibit, or dismantle the acquisition of U.S. businesses by foreign investors if there is credible evidence that the foreign investor may take action that threatens to impair “national security.”

© 2010 Pearson Education, Inc., publishing as Prentice-Hall 28 Exon-Florio (continued) –Applies if would be foreign control (exceeding 10% interest). –“National security” broadly defined. –Foreign investor may voluntarily notify U.S. government of intent to acquire interest. Risks divestment if does not notify. –Decision of President not subject to judicial review.