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Series 79 Top-Off Exam > 3 - Mergers & Acquisitions, Tender Offers, and Bankruptcy > Flashcards

3 - Mergers & Acquisitions, Tender Offers, and Bankruptcy Flashcards

This deck focuses on the m&a process, as well as tender offers, and bankruptcy.

1
Q

Waiting period under Hart-Scott-Rodino for stock deals

A

30 days

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2
Q

Waiting period under Hart-Scott-Rodino for all cash deals

A

15 days

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3
Q

Document filed when purchaser launches a tender offer

A

Purchaser files a Schedule TO to launch a tender offer

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4
Q

Minimum length of tender offer

A

Tender offer must remain open for at least 20 business days.

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5
Q

Document used by TargetCo management to respond to a tender offer

A

TargetCo management responds to a tender offer on a Schedule 14D-9

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6
Q

Deadline for TargetCo management to respond to a tender offer

A

TargetCo management must respond to a tender offer within 10 business days of a Schedule TO filing

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7
Q

Change to terms of tender offer

A

Any change to the terms of a tender must remain outstanding for at least 10 business days

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8
Q

Rule permitting share buybacks

A

Share buybacks are permitted under Rule 10b-18

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9
Q

Safe Harbor for small issuers under Rule 10b-18

A

Safe harbor for share repurchases does not include the first trade of the day or the last 30 minutes of trading

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10
Q

Safe Harbor for actively traded securities under Rule 10b-18

A

Safe harbor for share repurchases for actively traded securities does not include the first trade of the day or the last 10 minutes of trading

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11
Q

Volume limitation for share purchases

A

Daily volume limitation for share repurchases is 25% of the stock’s daily trading volume

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12
Q

Acceptable purchase price for share repurchases

A

Issuer can bid on their own securities at the greater of highest current bid or last sale price.

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13
Q

Restricted Period for M&A Deals

A

Under Reg M, the restricted period begins the day proxy materials are sent to shareholders

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14
Q

Type of buyer who will generally pay higher for a Target Company

A

Strategic buyers will generally pay more than financial sponsors due to synergies

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15
Q

Two key features of attractive LBO candidates

A

Buyers look for strong cash flow and operational improvements in attractive LBO candidates

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16
Q

Attractive feature to acquirer in an asset sale

A

In an asset sale, the buyer generally benefits from a stepped up cost basis

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17
Q

What is a fixed ratio transaction?

A

In a fixed ratio stock-for-stock transaction, the number of AcquirerCo shares received for each TargetCo share is fixed. Therefore, the transaction value changes.

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18
Q

What is a floating ratio transaction?

A

In a floating ratio stock-for-stock transaction, the value of the transaction is fixed, so the number of shares exchanged will fluctuate.

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19
Q

Benefits of broad auction

A

Broad auction offers best possibility of achieving maximum value by marketing to the largest number of potential buyers

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20
Q

Benefits of a targeted auction

A

Targeted auction maintains confidentiality, resulting in less business disruption

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21
Q

Describe a teaser

A

1-2 page company overview articulating the investment merits of the target; usually the first marketing document presented to prospective buyers

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22
Q

Engagement Letter

A

Document signed by a firm and an adviser to pursue an underwriting or strategic alternative (i.e. acquisition)

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23
Q

What is a non-solicitation clause?

A

Non-solicitation is a clause in a Confidentiality Agreement which prohibits the Acquirer from hiring away the Target’s key personnel.

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24
Q

What is a standstill agreement?

A

A standstill agreement is a provision in a Confidentiality Agreement which prohibits the Acquirer from making a hostile bid for the Target for a number of years after the initial engagement.

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25
Q

What is a club deal?

A

A club deal (clubbing) is a joint bid by multiple acquirers. A target might seek to prohibit club deals in a Confidentiality Agreement.

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26
Q

Describe a Confidential Information Memorandum (CIM)

A

A CIM is the main marketing document used by the Target including information about the sector, company, competition and financials.

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27
Q

Pro Forma Net Income for Accretion / (Dilution)

A

Pro Forma Net Income = AcquirerCo Net Income + TargetCo Net Income + After-Tax Synergies - After-Tax Interest Expense

28
Q

Pro Forma Outstanding Shares for Accretion / (Dilution)

A

Pro Forma Shares = AcquirerCo Diluted Shares + New Shares Issued

29
Q

New Shares Issued in an acquisition

A

New Shares = (Purchase Price x % stock consideration) / AcquirerCo Stock Price

30
Q

Calculation of Exchange Ratio

A

Exchange Ratio = (Purchase Price per Share - Cash per Share) / AcquirerCo Stock Price

31
Q

No-Shop Provision

A

Prohibits the seller from seeking a better deal after signing a Definitive Agreement

32
Q

Go-Shop Provision

A

Permits the seller to seek a better deal after signing a Definitive Agreement

33
Q

Bring-down due diligence

A

Diligence meeting prior to closing where all parties are brought up to speed on any recent developments

34
Q

Purpose of a Fairness Opinion

A

A Fairness Opinion confirms the financial fairness of a transaction, not the legal fairness

35
Q

One-step merger

A

Issuer files a proxy statement and shareholders vote on the transaction

36
Q

Two-step merger

A

AcquirerCo makes a tender offer for the target company’s stock in the open market

37
Q

Common squeeze out threshold

A

If the AcquirerCo gets 90% of the target company’s shares, the remaining shareholders can be forced to sell

38
Q

AcquirerCo shareholder approval to close a deal

A

AcquirerCo shareholders vote on a deal when the transaction would be dilutive by 20% or more

39
Q

Clearing Price in a Dutch Auction

A

The clearing price is the lowest price at which the tender can be filled; everyone receives the clearing price

40
Q

Chapter 7 Bankruptcy

A

Chapter 7 Bankruptcy is an orderly liquidation

41
Q

Chapter 11 Bankruptcy

A

Chapter 11 Bankruptcy is a restructuring; company can continue operating

42
Q

What is an automatic stay?

A

In a bankruptcy, an automatic stay requires creditors to cease their collection efforts outside of bankruptcy court

43
Q

Deadline for a creditor to file a claim under Chapter 7

A

In a Chapter 7, a proof of claim must be filed in a timely fashion

44
Q

Deadline for a creditor to file a claim under Chapter 11

A

In a Chapter 11, a proof of claim must be filed in a timely fashion only if the creditor disagrees with the amount on the debtors schedule

45
Q

Vote required for approval of reorganization plan

A

For a reorganization plan to be approved, it must be approved by creditors representing at least 2/3 of the dollar amount of the claims and at least 1/2 of the number of claims

46
Q

Debt service requirement for DIP financing

A

DIP financing must be serviced by a company in bankruptcy

47
Q

Section 363 Sale

A

Asset Sale by a company in bankruptcy

48
Q

Stalking Horse

A

A stalking horse is the initial bidder in a Section 363 sale who signs an Asset Purchase Agreement (APA) with the debtor

49
Q

Who has higher priority, trustee expenses or recent employee wages?

A

Trustee and attorney’s fees have higher priority than recent employee wages

50
Q

Who has higher priority, preferred stock or warrants?

A

Preferred stock has higher priority than warrants

51
Q

Who has higher priority, common stock or warrants?

A

Common stock and warrants have equal priority

52
Q

Impaired creditors

A

Impaired creditors are creditors who do not receive all of their money back. The largest impaired creditors make up the creditors’ committee.

53
Q

Order of documents in first round of M&A auction

A

Engagement Letter, Teaser, CA, CIM, Initial Procedures Letter, First Round Bids (IOIs)

54
Q

Regulatory requirements for a press release announcing a merger

A

Press release announcing a merger is a prospectus and is filed with the SEC on the day of first use

55
Q

Cross Default Clause

A

Provision in a Trust Indenture triggering a default if the issuer defaults on any other tranche of debt

56
Q

Negative Covenants

A

Negative Covenants prohibit the issuer from performing certain actions

57
Q

Document detailing fees received by an advisor in M&A deal

A

Engagement Letter details the fees received by an advisor

58
Q

Forward Triangular Merger

A

In a forward triangular merger (where the target becomes part of a subsidiary of the purchaser), as long as at least 50% of the consideration is stock, only the cash consideration is taxable to the TargetCo shareholders

59
Q

Reverse Triangular Merger

A

In a reverse triangular merger (where the subsidiary of the purchaser becomes part of the target), as long as at least 80% of the consideration is stock, only the cash consideration is taxable to TargetCo shareholders

60
Q

What happens to a company’s Board of Directors after filing for bankruptcy?

A

Upon filing for bankruptcy, the debtor’s Board of Directors will remain in place

61
Q

AcquirerCo shareholder approval for an all cash deal

A

AcquirerCo shareholder approval is not required for an all-cash transaction

62
Q

IRC 338(h)(10) acquisition

A

Asset sale where the target company stills owns the assets, but the assets are adjusted to reflect the purchase price

63
Q

Priority of convertible debt vs. unsecured creditors

A

Unsecured creditors have a higher priority than convertible debt in a bankruptcy

64
Q

Under 10b-18, the highest price an issuer can bid is the

A

higher of the last sale or the highest independent bid

65
Q

Tender offers must be outstanding for at least

A

20 business days

66
Q

In a fairness opinion, the member must disclose the amount of compensation it will earn. True or false?

A

FALSE

Series 79 Top-Off Exam (3 decks)

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