1. Chapter 32 Corporate Acquisitions, Takeovers and Termination

2. Learning Objectives
What is the difference between a corporate merger and consolidation?
What are the four steps of the merger or consolidation procedure?
Under what circumstances is a corporation that purchases the assets of another corporation responsible for the liabilities of the selling corporation?
What actions might a target corporation take to resist a takeover attempt?
What are the two ways a corporation can be voluntarily dissolved? Under what circumstances might a corporation be involuntarily dissolved by state action?

3. Merger and Consolidation
Corporations can grow and expand by:
Mergers.
Consolidation.
Purchase of another corporation’s assets.
Purchases of a controlling interest in another corporation.

4. Merger
Legal combination of two or more corporations (A & B) after which only A corporation remains. A’s articles of incorporation are amended to include articles of merger.
After merger, A continues as the surviving corporation with all of B’s rights and obligations. A B
A has all rights, privileges, and powers of itself and B
A automatically acquires B’s property and assets
A becomes liable for all of B’s debts and obligations
A’s articles are deemed amended to include changes that are stated in the articles of merger

5. Consolidation
Occurs when two or more corporations (A & B) combine such that both cease to exist and a new corporation emerges which has all the rights and obligations previously held by A and B.
C’s articles of consolidation take the place of the original articles of A and B. A B C

6. Merger and Consolidation Procedures
Board of Directors of each corporation involved must approve the merger plan.
Next Shareholders of each corporation must approve.
Then, articles filed with Secretary of State and who issues a certificate of merger to the surviving corporation or a certificate of consolidation to the newly consolidated corporation.

7. Merger and Consolidation Procedures
Shareholder Dissent
Dissenting shareholder must give written notice.
The notice shows what dissenters will cost corporation if action takes place.
Shareholder Appraisal Rights
Make written offer to purchase a dissenting shareholder’s stock, accompanied by current balance sheet and income statement for the corporation.

8. Purchase of Assets
The acquiring corporation extends its ownership and control over the physical assets of another company.
Acquiring corporation shareholders do not need to approve unless:
Acquiring corporation is paying for assets with its own stock and there is not enough stock authorized or
Acquiring corporation sells on a national exchange, is paying with its own stock, and newly issued stock = 20% or more than the outstanding shares.

9. Purchase of Assets: Liabilities
Generally, an acquiring corporation is not liable for liabilities of selling corporation unless:
The acquiring corporation impliedly or expressly assumes the liabilities.
Sale amounts to what is really a merger or consolidation.
Purchaser continues the seller’s business and retains the same personnel.
Sale is fraudulently executed to escape liability.
The selling corporation needs both board and shareholder approval.

10. Takeovers
Alternative to merger or consolidation is the purchase of a controlling interest (e.g., 51%) of a “target” corporation’s stock giving the purchaser corporation controlling interest in the target.
The aggressor deals entirely with the target’s shareholders.

11. Takeovers: Tender Offers
A tender offer is a publicly advertised offer addressed to all shareholders of the target.
A tender offer is usually higher than market value per share but conditioned on the acquisition of a certain % of shares
Can be in exchange for aggressor's stock.
Sec strictly regulates tender offers.

12. Tender Offer Terms Term Definition Crown Jewel
Management makes company less attractive by selling company’s most valuable asset (crown jewel).
Golden Parachute
If takeover successful, top management “bails out” of the target corporation with forced “retirement” benefits.
Greenmail
To regain control, target company may pay higher-than-market price to repurchase the stock.
Scorched Earth
Target company sells off assets or divisions or takes out loans to make it unattractive to hostile takeover.
White Knight
Target corporation solicits merger with 3rd party which is a better match. 3rd party “rescues” the target.

13. Takeover Tactics Exchange Tender Offer Cash Tender Offer Self-Tender
Offering corporation offers target shareholders its own securities in exchange for target stock.
Cash Tender Offer
Cash in exchange for target stock.
Self-Tender
Target company offers to buy stock from its own shareholders to retain control.
Friendly vs. Hostile Takeovers

14. Takeover Tactics Dummy corporations to act as decoys.
Beachhead Acquisitions
Proxy Fights
Leveraged Buy-Outs. Management (or another employee group) purchases all outstanding corporate stock, financed by loans secured by the corporate assets.
Defenses

15. Williams Act of 1970
Applies to Tender Offers for more than 5% of corporate stock.
Section 13(d) applies to open-market and private acquisitions.
Section 14(d) requires tender offers to be filed with SEC.
Section 14(f) requires disclosure of parties making tender offer.

16. Termination
Termination of a corporation, like a partnership, consists of two phases:
Dissolution (voluntary or involuntary); and
Liquidation.
Dissolution can brought about by:
Act of legislature
Certificate expiration
Voluntary approval by shareholders and board
Unanimous action by all shareholders
Court order

17. Dissolution
Shareholders can initiate dissolution by a unanimous vote to dissolve.
Or, the Board can initiate by submitting a proposal to the shareholders for a vote at the annual shareholder meeting or specially-called meeting.

18. Involuntary Dissolution
Secretary of State or Attorney General can dissolve if Corporation:
Fails to pay taxes.
Fails to file annual report.
Fails to designate registered agent for service.
Secured its charter through fraud.
Abused its corporate power.
Violated criminal laws.
Failed to commence business operations.
Abandoned operations before start-up.

19. Involuntary Dissolution
Close corporations:
May be able to be dissolved by one shareholder on the happening of a certain event.
Gives the same power to a shareholder to dissolve as a partner has for a partnership.

20. Involuntary Dissolution
Court can dissolve a corporation if:
Board is deadlocked and irreparable damage to corporation will ensue.
Mismanagement.
Minority shareholder is “frozen out” or oppressed.

21. Liquidation Voluntary Dissolution. Involuntary Dissolution.
Board liquidates and acts as trustees of assets.
Court will appoint a receiver if:
Board refuses; or
Creditors want a receiver.
Involuntary Dissolution.
Court appoints receiver.