Merger and Acquisitions Outline

Mergers and Acquisitions
Levin College of Law
Professor Edward B. Harmon
Spring 2016
 
WEEK 1: Introduction, Class Mechanics and Wall Street vs. Main Street
PAGES: Handout 1 (“skim only”), and pages 1 – 16 and 860-866.
PROBLEMS AND ACTIVITIES: Terminology, page 9 and roles of various parties.
 
Main Street v. Wall Street
Most transactions = Main Street
SEE Handout 1 for jargon review
DELAWARE = King for corporate and M/A law à most case law from there and most other states follow that
NOTE à A = acquirer or B = buyer, T = target or S = seller (the T in non-merger transactions),
 
JARGON OVERVIEW
“Inversion” deals = recently popular
Relocation of corporate HQ as part of an acquisition of US company by non-US company in another jurisdiction with a lower tax rate
E.g. = A acquires T (from its place outside of the US) then A relocates its corp. HQ to T’s former jurisdiction à where A (a US corp.) takes T (an Irish corp.) then A removes its HQ to Ireland
Result à A sets up subsidiaries outside of US and they loan excess cash back to US subsidiary of A and that US subsidiary pays interest (deductions taken) and foreign subsidiaries pay lower rate on interest payment received.
NET RESULT = US corporation gets access to huge amount of cash plus lower rates in other countries (for the interest payments received à think Ireland corp. tax rate vs. US rate)
 
“Strategic Buyer”
usually someone in the business à in the same industry as the T and A acquires T as part of a general strategy within the industry
“Financial Buyer”
firm with profit in mind and conversely, no rule in the same industry as T (opposite of strategic definition above)
“Spin off”
Think context of Pfizer-Pharmacia deal
Shareholders (SH) own Pharmacia (PH) which in turn owns, as wholly owned sub, Monsanto (M). Because PH, not SH, owns M à PH will pay dividends to SH in the form of M stock.
This dividend payment of M stock will see PH rid itself of any ownership of M à the SH who own PH will own M but this means Pfizer (PF) can now have no problem in acquiring PH; since PF wanted nothing to do with M.
Backward looking statements about T à promises made by T (regarding its current conditions) to P
In Main street, if T lied (breached) these then P can sue (not available in Wall).
 
 
Basic Considerations for all Deals:
ALWAYS INFORM CLIENT OF ANTITRUST AND CIFUS
Every deal covered, or at least subject to, the Hart-Scott-Rodino antitrust law.
Need consider creditors and other parties affected by the deal à consider their role, how they are affected, and their interests.
Goal = to structure deal around all those interests and to otherwise safeguard your deal plus meet your client’s urgency.
These considerations above operate against the government’s lack of a hurry à deals can be delayed for years.
CIFUS = committee for foreign investment in the US à their goal is to examine all foreign investment
Used to be limited to certain sectors/industries but now, in consideration of the global economy, it has broadened its view and almost everything goes thru CIFUS.
 
Main vs. Wall
Main Street Transaction = where there is a surviving entity (the selling party) against whom B may have recourse after transaction (future liability for suit).
Wall Street Transaction = there is no surviving entity for recourse later
IBM sells subsidiary to GE à IBM still exists after the sale = Main Street deal
Small firms can also be involved in Wall Street deals à a merger where T is absorbed (standard merger).
 
Most Main Street deals = Asset Purchases
consideration from A can be cash, stock, notes, or assumption of certain liabilities. Consideration determined by “asset purchase” agreement.
 
Most Wall Street deals = Reverse Triangular Merger (RTM) (called “agreement and plan of re-organization”
A makes a subsidiary which acquires T
T dissolves by operation of law as the sub takes over everything; there is usually a conversion of any remaining stock and there is an assumption by sub of all of T’s liabilities (different from asset purchase where only stipulated liabilities are assumed).
 
Section 363 auction = when a B buys T during T’s bankruptcy proceedings AND that B walks away with T and WITHOUT and ongoing liabilities of T.
BUT, need be weary of contingent liabilities (they are unqualifiable at the current time of purchase so be weary of pending litigation as the B would be responsible for any PLUS any ENVIRO contingent liabilities).
ENVIRO CONCERNS (with such a purchase) =
Phase 1 audit by environmental consulting firm à they scan the area for potential environmental issues and if any preliminary information found, they will suggest Phase 2 observations.
Phase 2 CAN BE EXPENSIVE plus IT TAKES TIME à so this purchase with these issues is only worth it IF you can sell the T later (or at least, its assets).
 
Regarding preliminary injunction:
Need to show reasonably probability of winning on the merits
Need to show that irreparable harm will occur otherwise
 
For Resolutions on Executing Transactions: draft broadly (to be safe) to begin with, but do so appropriately.
 
Remember, shareholder consent required in many transactions
Proxy statement: it must comply with SEC Act 1934
Can be expensive, time-consuming, most likely will lead to litigation because of issue/question of “was there full disclosure?” à as in, what is material?
Reason why short-form merger is best = AVOIDS ISSUES ABOVE
“securities” broadly defined under SEC 1933 Act
Usually requires registration statement