#3- Chapter 3- Legal framerwork Flashcards
What are the three types of merger laws in the United States?
- Federal security laws
- State corporation laws
- Federal antitrust laws
Stock exchange regulations and company bylaws are also concerns.
What are the two main U.S. securities laws?
- Securities Act 1933
- Securities Exchange Act 1934
The Securities Exchange Act founded the Securities Exchange Commission.
What is the purpose of the Williams Act (1968)?
- Regulate tender offer practices
- Provide procedures and disclosure requirements for acquisitions
- Prevent shareholder ignorance
- Enhance market reputation for fairness
This would help the market attract capital.
What are the William’s Act five subsection
- Section 13(d): Regulates substantial share acquisitions
- Section 14(d): Regulates tenders offers
- Section 14(e): Prohibits material misrepresentations and other improper practices in tender offer solicitation and opposition
- Section 14(f): Requires disclosure if share ownership changes result in the replacement of the board of directors without shareholder approval
- Section 13(e): Regulates issuer purchases
when is it required to file an 8K?
Required within 15 calendar days of the occurrence of a significant event.
This includes the acquisition of a significant amount of assets.
Where can you find the requirements of fillinf an 8-k
Securities Exchange Act of 1934
If a company acquires or disposes of assets, it must report the transaction only if:
The value of the assets acquired or disposed of exceeds 10% of the total book value of all the company’s assets (including subsidiaries).
What is on an 8k
- Description of the assets acquired or disposed of
- Amount of consideration given or received
- Identity of seller of assets
- Source of funds used
- Financial statements of target
What does the filing of a Form S-4 indicate?
When a bidder is using stock to finance an acquisition.
This form is less detailed than the S-1 that precedes an IPO.
What is Schedule 13D used for?
Alerts target of a potential threat to control.
FOUND in the willliams act
When do you file a 13-d
Within ten business days of acquiring 5%
of a firm’s outstanding stock.
What is a scheduled TO used for
Regulates disclosure of information
Used to be called Schedule 14D1
When should you file a schedule TO
At the time you declare tender offer
Found a williams act
What must a target company do in response to a tender offer?
File a Schedule 14D-9 within ten business days.
The target must recommend acceptance, rejection, neutrality, or state they are unable to take a position.
What was the central issue in Sun Oil vs. Becton Dickinson?
The court ruled that a 13D should have been filed when the 5% was negotiated, making the deal illegal.
This was a violation of the Williams Act.
Define a ‘Group’ in the context of securities acquisition.
When two or more persons act as a partnership or syndicate for acquiring securities, they are deemed a person under the law.
Groups must file if they cross the 5% threshold.
What is the Eight Factor Test used for?
To define a tender offer.
What are the eight facotrs
- Active and widespread
- Solicitation made for a substantial percentage of an issuer’s stock
- Offer to purchase made at a premium
- Terms of the offer are firm rather than negotiated
- Offer contingent on the tender of a fixed number of shares
- Offer only open for a limited time period.
- Offeree subject to pressure
- Public announcements of a purchasing program concerning the targetcompany precedes or accompany rapid accumulation of larger amounts of the target company’s securities
What does the Business Judgment Rule entail?
Managers and directors must exercise reasonable diligence in corporate oversight.
Directors should act in the best interest of shareholders.
What is the Unocal Standard?
A board may prevent a takeover if there is a threat to corporate policy and the measures are proportional and reasonable.
This was established in the case Unocal vs. Mesa Petroleum.
What are Revlon Duties?
Directors must maximize shareholder gains during a control offer and not hinder the auction process.
Lockup and no-shop options are typically not valid defenses.
What is prohibited under insider trading laws?
Trading on material private information.
Insiders must report transactions within two business days.
What is the Sherman Antitrust Act?
Prohibits attempts to monopolize an industry or restrain trade.
It is cornerstone legislation from 1890.
What does the Hart-Scott-Rodino Act require?
FTC and Justice Department review proposed mergers and acquisitions in advance.
Very small firms are excluded from this requirement.
What is the Herfindahl-Hirschman Index (HHI) used for?
To assess market concentration for merger evaluations.
A higher index indicates fewer permissible increases in market concentration post-merger.
What is the formula for HH index
HHI=∑s_i^2
where si market shre of a companies in the industry in precentage
What is the minimum offer period for a tender offer?
20 business days.
Bidders must treat all shares tendered equally.
What happens if there is a significant change in the offer?
A full 20 business days are provided to shareholders to consider the new offer.
This applies if there is a change in offer price.
What is required if a bidder increases the offer price?
The increased consideration must be given to all who have tendered shares.
This is known as the Best Price Rule under Section 14d-7.
