Mergers and Acquisitions
Fall 2012
Professor Huss
Statutory Analysis (20 points)
· set of statutory materials along with questions similar to the problem sets contained in Chapter 2 of the text book.
Multiple Choice (20 points, 10 problems)
Short answer/Essay
· Question types
o Two 5 point Questions = 10 points
o One 15 Point Question = 15 points
o One 20 Point Questions = 20 points
· Possible questions
o recommend the “form of a transaction” based on facts provided
o purpose and impact of termination fee provisions and circumstances under which they will be considered valid or invalid
Introduction / BA Review
M&A are pretty much the bread and butter of a transactional attorney
Options to purchase a company
1) Purchase stock – tender offer (public offer to purchase the stock of a company)
a. Don’t need shareholder vote
2) Statutory merger
a. don’t have to transfer title, unlike acquisitions
3) Proxy fight – get control of BOD through vote.
a. Expensive and lengthy, so they aren’t used much anymore
4) Asset purchase: need shareholder vote
Tasks of different groups
· Shareholders: vote on fundamental changes
· Board of Directors: high level decisions
Internal affairs doctrine
· choice of law for where the value is company is incorporated.
Appraisal rights
· fair value for SH that will lose their shares, unless an exemption will apply
· 1) do you get appraisal rights 2) what time of rights do you have
Duty of Care (very low standard)
· fiduciary duty of the board to act as a reasonable person.
o Standard: can’t act in a grossly negligent fashion
o Have to be informed.
· Business Judgment Rule
o Presumption that the BOD acts in the company’s best interest in the absence of fraud, illegality, or self-dealing
Duty of Loyalty
· no conflict of interest for BOD and officers
· corporate opportunity doctrine
If you don’t show a duty of care or loyalty problem à BJR applies for director decisions
What impacts mergers?
· Regulation / Antitrust laws
· Technological change
· Financial markets
· Role of leadership
Introduction to Business Acquisitions
pp. 1-37
Deal Flow
1. Start of negotiations
a. Financial advisor or investment banking firm identifies a potential acquisition.
2. Role of financial advisors
a. How should the deal be structured & how much will bidder pay to acquire target.
b. Target wants the right price b/c they only get one chance to sell their business and relinquish control
i. Confidentiality agreements (NDA): The exchange of info requires that B and T share sensitive, proprietary information
c. Target’s business objectives: Speed, certainty, price
i. Speed: risk that the deal with disrupt the seller’s business
ii. Certainty: minimizing the risk that the deal won’t close
iii. Price: maximizing the price for the business
3. Non-cash consideration
a. Bidder issues stock in exchange for Target’s business. The result is that Target shareholders own bidder’s stock.
4. Due diligence
a. Process of gathering all relevant information necessary to complete a fair transaction.
i. Necessary to alleviate T and B concerns
1. Bidder wants to make sure it does not overpay
2. Target wants to make sure it gets the right kind of consideration and the best price.
5. Board approval
a. Most transactions require approval of both T and B BOD
6. Shareholder approval
a. State law often requires SH approval of the terms.
b. Additionally, disclosure must be followed. These must follow federal securities laws and proxy rules.
7. Regulatory approval
8. Closing on the acquisition transaction
Corporate Formalities
The mechanics of structuring acquisition transactions
P1-37, 39-55, 65-88, 88-100, 102-103, 110-114, 116-117, 124, 128-129, 141
Statutory scheme of Delaware and Model Act
1. Board and/or shareholder approval under state law
2. Federal securities law and stock exchange rules
a. Federal proxy rules
b. Securities Act of 1933
c. Shareholder approval under NYSE requirements
Corporate formalities under Delaware and MBCA required for
1. statutory mergers
a. Background
b. Dissenter’s right of appraisal
c. Perfecting
up to $24 was fair.
b. Fair Price
i. If the SH only gripe is price, the only remedy is appraisal value, so must always argue fair dealing.
ii. “Delaware Block” approach is no longer the exclusive way to Value – Value can be measured by any method generally accepted in the financial community
4. BOP: Burden of Proof
a. (1) first on the plaintiff to show some basis of fraud, misrepresentation, or misconduct
i. (2)Then shifts to the defendant to prove Entire Fairness
ii. Doesn’t apply to short-form merger. S-F merger always has appraisal rights.
2. Appraisal Rights as Exclusive Remedy
a. Rabkin v. Philip A. Hunt Chemical Corp.
i. absent fraud, the only remedy for π was appraisal
3. Valuation Techniques and Fair Price
a. Cavalier Oil v. Harnett
i. Corporate opportunity claim:
ii. Minority discount: no, but some states have minority discount.
b. Cede & Co. v. Technicolor
i. All about timing. Two-step transaction
ii. Snapshot on the day of the merger.
iii. Battle of the experts
Modern Finance Theory
