1. Chapter 38 Corporate Acquisitions and Multinational Corporations

2. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

3. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

4. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

5. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

6. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

7. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

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

9. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

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

11. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

12. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

13. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

14. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

15. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

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

17. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

18. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

19. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

20. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

21. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

22. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

23. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

24. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

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

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

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

28. 38-28