1. Chapter 29 Corporate Acquisitions and Multinational Corporations
PowerPoint Slides to Accompany CONTEMPORARY BUSINESS AND ONLINE COMMERCE LAW 6th Edition by Henry R. Cheeseman
Chapter 29
Corporate Acquisitions and Multinational Corporations
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2. Introduction
During the course of its existence, a corporation may go through certain fundamental changes.
A corporation must seek shareholder approval for many changes.
This requires the solicitation of votes or proxies from shareholders.
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3. Proxy Solicitation
Corporate shareholders have the 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 – a written document signed by a shareholder that authorizes another person to vote the shareholder’s shares.
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4. Federal Proxy Rules
Section 14(a) of the Securities Exchange Act of 1934 gives the SEC the authority to regulate the solicitation of proxies
Proxy Statement – A document that fully describes:
The matter for which the proxy is being solicited
Who is soliciting the proxy
Any other pertinent information
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5. Antifraud Provision
Section 14(a) of the Securities Exchange Act of 1934 prohibits misrepresentations or omissions of a material fact in proxy materials.
The SEC, U.S. Justice Department, or share-holders who are injured by the misrepresent-ation or omission may sue the wrongdoer.
The courts have implied a private cause of action under this provision.
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6. Proxy Contents
Shareholders sometimes oppose actions taken by the incumbent directors and management.
The insurgent shareholders may challenge the incumbent management in a proxy contest.
Both sides solicit proxies from the other shareholders
The side that receives the greatest number of votes wins the proxy contest
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7. Shareholder Resolution
Resolution submitted by a shareholder to other shareholders
Shareholder must meet certain requirements of the Securities Exchange Act of 1934 and SEC rules adopted thereunder
The SEC determines if a shareholder proposal qualifies to be submitted to other shareholders for vote.
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8. Mergers and Acquisitions
Corporations may agree to friendly acquisitions or combinations of one another:
Merger
Consolidation
Share Exchange
Sale of Assets
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9. Merger
Occurs when 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.
The shareholders of the merged corporation receive stock or securities of the surviving corporation as provided in the plan of merger.
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10. Example of a Merger + = Corporation A Corporation B Corporation A
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11. Consolidation
Occurs when two or more corporations combine to form an entirely new corporation
The new corporation is called the consolidated corporation.
The articles of incorporation of the new corporation replace the articles of incorporation of the component corporations.
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12. Example of a Consolidation
Corporation A
Corporation B
Corporation C + =
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13. Share Exchange
When one corporation acquires all the shares of another corporation
Both corporations retain their separate legal existence.
After the exchange, one corporation (parent corporation) owns all of the shares of the other corporation (subsidiary corporation.)
Often used to create holding companies
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14. Example of a Share Exchange
Corporation A (parent corporation)
Corporation A
Corporation B + =
A owns B
Corporation B (subsidiary corporation)
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15. Required Approvals for a Merger
An ordinary merger or share exchange requires:
The recommendation of the board of directors of each corporation; and
An affirmative vote of the majority of shares of each corporation that is entitled to vote
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16. 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
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17. Sale or Lease of Assets
A corporation may sell, lease, or otherwise dispose of all or substantially all of its property in other than the usual and regular course of business.
Such a sale or lease transaction requires:
The recommendation of the board of directors, and
An affirmative vote of the majority of the shares of the selling corporation that is entitled to vote
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18. 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 have a right to have their shares valued by the court and receive cash payment of this value from the corporation.
The court must determine the “fair value” of the shares of the dissenting shareholders.
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19. Tender Offer
An offer that an acquirer makes directly to a target corporation’s shareholders in an effort to acquire the target corporation
The tender offeror’s board of directors must approve the offer.
The shareholders do not have to approve
The tendering corporation and the target corporation retain their separate legal status.
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20. Illustration of a Tender Offer
Tender Offeror
Tender offer is made to the shareholders of the target corporation. The tender offeror offers to purchase their shares in the target corporation.
Target Corporation
Shareholders
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21. Landmark Law: The Williams Act (1968)
An amendment to the Securities Exchange Act of 1934
Specifically regulates all tender offers
Establishes certain disclosure requirements and antifraud provisions
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22. Tender Offer Rules Fair Price Rule
A rule that says any increase in price paid for shares tendered must be offered to all shareholders
Even those who have previously tendered their shares
Pro Rata Rule
A rule that says shares must be purchased on a pro rata basis if too many shares are tendered
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23. Tender Offers: Antifraud Provision
Section 14(e) of the Williams Act prohibits fraudulent, deceptive, and manipulative practices in connection with a tender offer.
Violations of this section may result in civil charges brought by the SEC or criminal charges brought by the Justice Department.
The courts have implied a private civil cause of action under Section 14(e).
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24. Defensive Strategies and Tactics Against Hostile Tender Offers
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
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25. Fiduciary Duty
The members of the board of directors of a corporation owe a fiduciary duty to the corporation and its shareholders.
This duty requires the directors of a corporation to act carefully and honestly when acting on behalf of the corporation.
This duty is truly tested when a tender offer is made for the stock of the company.
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26. Business Judgment Rule
A rule that protects the decisions of the board of directors, who 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.
In the context of a tender offer, the defensive measures chosen by the board must be reasonable in relation to the threat posed.
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27. State Antitakeover Statutes
Statutes enacted by state legislatures that are aimed at protecting corporations that are either incorporated in or doing business within the state from hostile takeovers
Many of these statutes have been challenged as unconstitutional because they violate the Williams Act and the Commerce and Supremacy clauses of the U.S. Constitution.
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28. Multinational Corporations
Subcontracting
Wholly-owned branches and subsidiaries
International multinational firms
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