I – INTRO TO THE CORPORATION – Radol v. Thomas
· Securities laws: applies to public companies – companies whose stock can be bought by public
· States are free within corp bounds to regulate cos as they choose
o Most, however, follow DE law, b/c DE adopts a body of law friendly to corps
o Easy to charter a co in DE
§ Corps choose where they want their domicile to be
o Most states try to fashion their law to DE’s, but not all – Ie – CA
o Policy –
o Move for more uniformity in corp law –
§ Model business corp act, etc.
· Courts look for uniformity
· Radol complaint (handout) –
o Do we need corp law at all?
§ Arg for No – corp is a collection with a lot of diff people (stakeholders) with an economic interest in a business. Most of these folks came together voluntarily to make $. So long as they don’t break the law or harm others, then let them work out their problems by themselves through contract.
o Plantiffs – minority shareholders of Marathon Oil (all the individual shareholders)
§ What happened to the other shareholders? – their shares were bought at an elevated price = tender offer (public offer to a cos shareholders to buy their stock at a set price to buy their stocks at a premium set over the market price)
· Under fed law, the same offer must be made to everyone (not just directors of corps.)
o D US Steel makes a tender offer to Marathon’s controlling owners of the stock. Acquisition of 51% gives the owner voting rights.
§ Offer made to a large number of shareholders
§ Tender offer was a public offer; made through the newspaper and extended to every Marathon shareholder
· Offer was to buy the stocks at a set price – $125/share, which is higher than rival bidders and the market price.
o when a co buys more than what they need to take over (greater than 51%), then a rule that says that a co has to buy every share of a co. yields destruction of the tender offer market
o Q = is it fair when the certain shareholders get to have their shares bought b4 the others? Ie – directors, corp insiders get to sell their shares first.
§ It is assumed that during a takeover, those who retain their stocks are in a worst position than if they would have sold them, so its important to sell. Issues come into play if everyone is not able to sell (you only need 51%, who gets to be part of that percentage?)
§ If tender offers are only reserved for corp insiders and directors, etc, this goes against the theory that shareholding is for everyone.
§ Is the first-come-first-serve theory fair?
· Maybe not. Insiders, big cos with managers, etc, that have more of a chance to participate will benefit, b/c they will hear ab
nd not want to lose $. This was how steel coerced them.
o If the merger does not go well,….
· Choose tender offer
o If it goes well, shareholders get the $12,500.
o If it does not go well, ….
§ Could the co have gotten out of the dilemma of having to choose bet acceptance or not?
· Shareholders could organize and ½ would decide to tender and ½ would not. Knowledge of each others vote is important, b/c each other would tender, thinking the others would, too. Making decisions separate is bad.
· Why didn’t the marathon shareholders do this? Problems with collective action problems, with shareholders working together. This is why cos like us steel can make offers like this. US law is trying to remedy this, though, but currently no solution.
o The notes –
§ Worth $100 face value, in 12 years.
§ US steel paid interest = $12.50/yr
§ Why do plantiffs, then, think the notes are only worth $80 (worth meaning the market price on the notes the day they are issued)?
interest rate risk – Interest rate were low; perhaps other firms were giving higher rates than 12.5%