book chapter 3 (class 2) Flashcards
the legal requirements governing M&As in the United States differ depending on what?
whether a transaction is a friendly merger or a hostile deal
legal workings of a Friendly merger—cash financed
The bidder is required to file a proxy statement with the Securities and Exchange Commission (SEC) that describes the deal
–> Usually, the bidder has to file a preliminary statement first
–> If the SEC makes comments, the preliminary statement may be changed before it is finalized
The finalized proxy statement is then mailed to shareholders along with a proxy card that they fill out and return
–> Following this, the deal has to be approved at a shareholders’ meeting, whereupon the deal can then be closed
legal workings of a Friendly merger—stock financed
process is similar to a cash-financed merger except that the securities used to purchase target shares have to be registered
legal workings of a Hostile deal—cash financed
The bidder initiates the tender offer by disseminating tender offer materials to target shareholders
Such offers have to be made pursuant to the requirements of the Williams Act
unlike the friendly transactions just described, the SEC does not have an opportunity to comment on the materials that are sent to shareholders prior to their dissemination
–> can do so during the minimum offer period
legal workings of a Hostile deal—stock tender offer
The bidder first needs to submit a registration statement and wait until it is declared effective prior to submitting tender offer materials to shareholders
The SEC may have comments on the preliminary registration state- ment that have to be resolved before the statement can be considered effective
Once this is done, the process proceeds similar to a cash tender offer
The three main groups of laws in M&A
Securities Laws
state corporation laws
antitrust laws
Securities Laws
most important starting part is the filing of an 8K, followed by a detailed discussion of the Williams Act
filing of an 8K
must be made within 15 calendar days after the occurrence of certain specific events
–> Such events include the acquisition and disposition of a significant amount of assets, including companies
The filing will include information such as the following:
◾ Description of the assets acquired or disposed of
◾ Nature and amount of consideration given or received
◾ Identity of the persons from whom the assets were acquired
◾ In the case of an acquisition, the source of the funds used to finance the purchase
◾ Financial statements of the business acquired
when are acquisitions are determined to involve a significant amount of assets?
if the equity interest in the assets being acquired or the amount paid or received in an acquisition or disposition exceeds 10% of the total book assets of the registrant and its subsidiaries
Filing of an S-4
we do this to so that a company can register new stock used to acquire a target shares by filing a disclosure form with the SEC
provides a substantial amount of information for shareholders to review to learn about the purposes of the deal
In most stock-for-stock transactions, the acquirer and target will file a joint proxy statement/prospectus within the Form S-4
NYSE and NASDAQ rules, as well as most state corporation laws, require that when a company issues more than 20% of its outstanding shares to acquire a target, it must receive the approval of its shareholders
The Williams Act
one of the most important pieces of securities legislation in the field of M&A
The Williams Act’s four major objectives
- To regulate tender offers
–> Before the Williams Act was passed, stockholders of target companies often were stampeded into tendering their shares quickly to avoid receiving less advantageous terms
- To provide procedures and disclosure requirements for acquisitions
–> A proper valuation of the acquiring firm’s shares depends on the availability of detailed financial data
- To provide share holders with time to make informed decisions regarding tender offers
- To increase confidence in securities markets
–> securities markets can attract more capital
Section 13(d) of the Williams Act
provides an early warning system for stockholders and target management
–> alerting them to the possibility that a threat for control may soon occur
provides for disclosure of a buyer’s stockholdings, whether they have come from open-market purchases, tender offers, or private purchases, when these reach 5% of the target firm’s total common stock outstanding
provides for the filing of a Schedule 13D with the SEC and any exchange on which the issuer’s stock is traded, as well as the issuer
is the disclosure of the required information, pursuant to the rules of Section 13(d), necessary even when there is no tender offer?
yeee
The buyer who intends to take control of a corporation must disclose the required information following the attainment of a 5% holding in the target
The buyer makes this disclosure by filing a Schedule 13D
Schedule 13D of the Williams Act requires the disclosure of which information?
The name and address of the issuing firm and the type of securities to be acquired
Detailed information on the background of the individual filing the information, including any past criminal violations
The number of shares actually owned
The purpose of the transaction
The source of the funds used to finance the acquisition of the firm’s stock
–> ex: reliance on debt
the bidder must disclose all transactions in the target’s shares that occurred over the 60-day period prior to the offer
Amendments Required under Section 13(d)(2) of the Williams Act?
requires the “prompt” filing by the issuer when there has been a “material change,”
–> ex: acquiring an additional 1%, in the facts that were set forth in Schedule 13D
Remedies for Failure to Comply with Section 13(d)
either shareholders or the target company may sue for damages
Parties that are found guilty of violating Section 13(d) may face fines and possible disgorgement
section 13(d) of William’s is designed to protect target shareholders’ rights or interest of the target company? why?
The courts are more mindful of the target’s shareholders’ rights under Section 13(d) than those of the target corporation itself
because this section of the statute was designed for their benefit as opposed to protecting the interests of the target corporation
more concerned about making sure the proper disclosure is provided to share- holders as opposed to standing in the way of an acquisition
how can the court react if a company acquires derivatives in order to no file section 13(d) pf William’s?
they gonna not take it well and roast them
Schedule 13G of William’s
investors, who acquire 5% or more of a company’s shares but who did not acquire more than 2% of those shares in the previous 12 months and who have no interest in taking control of the firm are required to file the much less detailed Schedule 13G
–> These shareowners are sometimes called 5% beneficial owners
–> SEC are not as strict with them
must be filed on February 14 of each year
shareholders who were eligible to the Schedule 13G of William’s but now want to control the company ant to do what?
they must file a 13D and cannot take any actions, such as those that may have been described in the 13D filing, until the passage of 10 days
Section 14(d) of William’s
provides for disclosure of various information in tender offer
Both Sections 13(d) and 14(d) apply only to equity securities registered with the SEC
–> both apply to tender offers that, if successful, would result in the owner possessing 5% or more of a class of equity securities
Schedule TO of William’s
combination of 14D-1 and 13E-4
requires the bidder to disclose various information, such as the specific shares to be acquired, the identity and background of the bidder, the terms and purpose of the transaction, and the source of funds to be used
the bidder has to include the last two years of its financial statements
an exchange offer
When the offer is a stock-for-stock, or a cash and stock combination for stock trans- action
Withdrawal Rights
Shareholders may withdraw their shares any time during the entire period the offer remains open
The goal of this rule is to allow shareholders sufficient time to evaluate the offer—or offers
A partial tender offe
one in which there is a bid for less than 100%, such as a bid for 51%, which usually affords the acquirer control of the target
Two-tiered tender offers
are bids that provide one type of compensation for a first tier, such as the first 51%, other compensation for the remaining shares
Definition of a Tender Offer
The Williams Act is purposefully vague and does not offer a clear definition of a tender offer
Eight Factor Test of tender offer
- There is active and widespread solicitation of public shareholders for shares of an issuer
- Solicitation is made for a substantial percentage of an issuer’s stock
- Offer to purchase is made at a premium over the prevailing market price
- Terms of the offer are firm rather than negotiated.
- Offer is contingent on the tender of a fixed number of shares and possibly specifying
a maximum number of shares - Offer is open for only a limited time period
- Offeree is subject to pressure to sell stock
- There are public announcements of a purchasing program that precede or are coincident with a rapid accumulation of shares
A transaction need not satisfy all eight factors in order to be considered a tender offe
Materials That Shareholders Receive
an Offer to Purchase
–> sets forth the terms of the offer
–> Chief among these terms are the number of shares to be purchased, the offer price, and the length of time the offer will remain open
a Letter of Transmittal
Method of Tendering Shares
through an intermediary, such as a commercial bank or trust company, which is referred to as the paying agent
submit their shares to the paying agent in exchange for cash or securities, in accordance with the terms of the offer
The agent accumulates the shares but does not pay the stockholders until the offer expires
Changes in the Tender Offer
The Williams Act allows a modification in the offer period if there is a material change in the terms of the offer
Payment Following Completion of the Offer
tendered shares must be either paid for promptly after the offer is terminated or returned to the shareholders
Mini-tender offers
bids for less than 5% of a company’s stock
much less regulated as bidders,
are not required to comply with the disclosure requirements for larger tender offers
Taking Control after a Successful Tender Offer
the target and the bidder agree that the bidder may elect a majority of the board of directors
allows the bidder to take control of the board of directors without calling a meeting of the shareholders and soliciting their voting approval
antitakeover defenses
limit the ability of a bidder to appoint members to the board
Delisting the Target
Following a takeover and merger of a target into the bidder, a bidder/target may then file to have the target’s shares delisted from the exchanges on which it was traded
A Form 25 then needs to be filed with and approved by the SEC
true or false
Because the law was designed to give stockholders time to carefully consider all relevant alternatives, an extension of the offer period is possible when there is a competing offer
true
10 days
Applicability of U.S. Tender Offer Rules to Takeovers of Non-U.S. Companies
The U.S. tender offer rules apply to U.S. companies when they make bids for the shares of foreign companies if the target’s shares are registered in the United States
which takeovers can a U.S. president halt?
takeovers that are determined to be threats to U.S. national security
the UK’s City Code
in M&As all shareholders be treated equally and fairly
attempts to prevent target firms from adopting antitakeover measures without prior shareholder approval
The target’s shareholders must approve antitakeover measures, such as supermajority provisions or the issuance of options to be given to friendly parties
The European Takeover Directive
EU
regulates takeovers in Europe
In order to protect minority shareholders
–> contains a requirement to make a mandatory offer after a bidder purchases a certain number of shares
true or false
In France, takeover activity is more common than in most other nations in continental Europe
true
why were French takeover rules amended to establish a minimum bid threshold of 50%
to prevent creeping bids
–> If a bid fails to attain the 50% minimum, it lapses
france’s rules for M&A favor whom?
long-term shareholders
in which European country are takeovers more common?
France
IS Germany more accepting or hostile to takeover bids?
more hostile towards them
Holland’s “put up or shut up”
This rule allows the Netherlands authority for financial markets (the AMF) to be able to require a potential bidder, one that has made public statements that could be construed as indicative of a takeover planning, to make a definitive statement to the public market as to its intentions
If the presumed bidder denies interest in a takeover, that potential bidder is prohibited from making a takeover bid for six months
Italian takeover rules divide tender offers into voluntary and mandatory offers
What’s a voluntary bid?
can be either hostile or friendly
have an offer period of between 15 and 40 trading days
The bidder determines the prices
Italian takeover rules divide tender offers into voluntary and mandatory offers
What’s a mandatory bid?
required when the bidder acquires enough shares to gain control of a certain percentage of the target’s board
Mandatory bids have an offer period of between 15 and 25 trading days
the price is determined by a best price rule
The business judgment rule
standard by which directors of corporations are judged when they exercise their fiduciary duties in the course of an attempted takeover
it is presumed that directors act in a manner that is consistent with their fiduciary obligations to shareholders
Delaware law
irectors’ duties pursuant to the business judgment rule are that they should manage the affairs of the company by keeping three key duties in mind
- They have a duty of loyalty.
- They have to demonstrate care for the interests of shareholders
- They should carry out their duties in a manner that is in the best interests of the
corporation and its shareholders
