Ch 3 Deck 6

Question 1

Buyer strategy in which a potential buyer attempts to take over a corporation by changing who is on the board of directors through a special election

Answer 1

proxy contest

Question 2

in a proxy contest, the election of new board members may occur

Answer 2

at an annual meeting or a special meeting of the shareholders

Question 3

Proxy contests are used less often than other take-over strategies for several reasons:

Answer 3

1) Their outcomes are less certain,
2) They are more expensive than other methods,
3) Shareholder voters are often apathetic and tend not to vote for change, and
4) Incumbent board members can use the corporate treasury to fund their reelection.

Question 4

Anti takeover measures that do not deter proxy contests are

Answer 4

poison pill devices

Question 5

Anti takeover measures that are good deterrents against proxy contests are

Answer 5

staggered boards

Question 6

buying strategy in which the purchasing company buys all of the selling company’s assets, with the exception of the target company’s stock

Answer 6

Asset Sale

Question 7

After an asset sale acquisition is completed, the shareholders of the target company

Answer 7

redeem their shares

Question 8

Poison Pills are also called

Answer 8

Shareholder’s rights plans

Question 9

In a Shareholder’s Rights plan, the board of directors declares a

Answer 9

dividend of rights to buy additional shares of the company at a discount to the market price

Question 10

In a Shareholder’s Rights plan, The rights start out with an exercise price that is

Answer 10

far out-of-the-money (often 200% to 300% above the market price)

Question 11

In a Shareholder’s Rights plan, upon a triggering event, the Rights can be redeemed at

Answer 11

a discount to the stock’s market price, such as a 50% discount

Question 12

In a Shareholder’s Rights plan, a triggering event can be

Answer 12

a raider acquiring 15% of the company

Question 13

In a Shareholder’s Rights plan, the rights can be redeemed at a discount for a

Answer 13

limited time (often 10 days)

Question 14

The purpose of the poison pill is to

Answer 14

• deter the raider from initiating the triggering event, and
• encourage the raider to negotiate with the Board for a better price.

Question 15

Board of directors can put a poison pill plan into place

Answer 15

without shareholder approval

Question 16

The rights plan in a target company allows existing shareholders to acquire

Answer 16

a large amount of stock if a buyer acquires more than a set amount of the target’s stock (usually 15%)

Question 17

in a poison pill, when existing shareholder’s acquire large amounts of stock it

Answer 17

reduces the target’s value owned by the buyer, and makes the acquisition more expensive

Question 18

A poison pill forces a bidder to negotiate with

Answer 18

the board of directors of the target company instead of the shareholders

Question 19

When a bidder is forced to negotiate with the board by a poison pill, the board may

Answer 19

find other bidders to help drive up the price

Question 20

A shareholder’s rights plan does NOT cause

Answer 20

the target’s debt to rise

Question 21

Staggered boards are usually divided into

Answer 21

three classes in which each class is elected every three years

Question 22

Usually the by-laws of the corporation mandate that board members may only be removed through

Answer 22

cause or with a supermajority of shareholders

Question 23

A staggered board makes it difficult for a raider to change the composition of the board in a proxy contest because

Answer 23

only a third of the board members are elected each year

Question 24

The minimum time it takes to change control of a staggered board is

Answer 24

2 years

Question 25

Required in order to adopt a staggered board

Answer 25

a majority of shareholder votes

Question 26

Staggered boards are usually adopted prior

Answer 26

to the initial public offering of a corporation