Mergers & Acquisitions
Prof. Ronald Brown, III
I. Introduction and Review of Business Organizations
Separation of Ownership and Control
A. In a Corporation, ownership of the firm is formally separated from its control
B. Shareholders nominally own the corporation, but they have virtually no decision-making powers (just the right to elect the directors and vote on a limited number of corporate actions)
C. Management of the firm is vested by statute in the hands of the Board, who in turn delegate the day-to-day running of the firm to its officers, who in turn delegate some responsibilities to the company’s employees
D. The conflict of interest created by this separation drive much of corporate law, specifically fiduciary duties
E. Essential prerequisite to corporate success – (a) most investors in corporations prefer to be passive holders of stock and (b) separating ownership and control results in various efficiencies in making decisions
F. Three policy responses to the potential divergence of shareholder and managerial interests created by the separation of ownership and control: (1) some corporate laws try to reunite ownership and control, giving shareholders more control over the firm; (2) some laws target the supposed lack of managerial accountability that purportedly is the basic problem caused by separating ownership and control; (3) some laws try to align management and shareholder interests
A. Corporations: Target and Acquirer
B. Boards of Directors
1. Controlling stockholders
i. Majority control – dominant shareholder who owns more than 50% of the outstanding voting shares
ii. Minority control – dominant shareholder who owns less than 50% of the outstanding voting shares, but is nevertheless able to exercise effective voting control
2. Plaintiff stockholders
3. Other stockholders
1. CEO and other top managers
1. Attorneys, consultants, accountants, investment bankers
F. Other constituencies
How to Acquire Control of a Corporation
A. Merger: 8 Del. C. §§ 251, 253
1. Multiple forms (long form statutory merger, short-form merger, etc.)
2. Focus: (1) whether you need Board approval; (2) whether you need a stockholder vote; (3) Who gets appraisal rights
B. All or substantially all assets: 8 Del. C. § 271
1. Rarely done
2. Only title to the a
tain – rational shareholder apathy (shareholders pay little attention to the campaign)
A. Duty of Care
1. Fiduciaries must use the amount of care which ordinarily careful and prudent men would use in similar circumstances and consider all material information reasonably available in making business decisions. (Gross negligence standard)
B. Duty of Loyalty
1. Fiduciaries must pursue the best interests of the company and must act in good faith (which was thought to be a separate duty).
2. Directors must be disinterested and independent.
C. These are the only 2 Fiduciary Duties under Delaware law – other Duties are derived from care and/or loyalty.
Who Has Fiduciary Duties?
A. The Board of Directors
1. The business and affairs of the corporation are managed by or under the direction of the board of directors. (8 Del. C. § 141(a))
2. Duties flow to the corporation and its stockholders.
3. Duties are evaluated for each director and for the board as a whole.
1. Have the same duties as directors.
C. Controlling Stockholders
1. Owe a Duty of Loyalty to the corporation and minority stockholders.