Ch 41 Mergers and Takeovers Flashcards
A corporation may extend its operations by combining with another corporation through what three things?
1) Merger
2) Consolidation
3) Share exchange
Do the rights and liabilities of shareholders, the corporation, and the corporation’s creditors differ based on whether the combo is a merger, a consolidation, or a share exchange?
No
The power to merge, consolidate, and exchange shares is conferred by what?
By statute (and thus state law establishes the specific procedures)
What does a merger involve?
- the legal combo of two or more corporations
- after a merger, only one of the corporations continues to exist
Corporation A and Corporation B decide to merge. They agree that A will absorb B. What do you call A?
Surviving corporation
True or false.
After a merger, the surviving corporation possesses all of the rights, privileges, and powers of itself and B.
True
True or false.
After a merger, the surviving corporation automatically acquires all of B’s property and assets w/o the necessity of a formal transfer.
True
Does the surviving corporation become liable for all of B’s debts and obligations?
Yes
Define articles of merger.
A document filed with the secretary of state that sets forth the terms and conditions of the merger
After a merger, if B had a right of action against a third party under tort or property law, can the surviving corporation bring a suit after the merger to recover B’s damages?
YES
What happens in a consolidation?
Two or more corporations combine in such a way that each corporation ceases to exist and a new one emerges
In a consolidation, who inherits all of the rights, privileges, and powers previously held by A and B?
Consolidated corporation
After a consolidation, what takes the place of A’s and B’s original corporate articles and are thereafter regarded as C’s corporate articles?
Articles of consolidation
Consolidations are more common among what types of corporations and associations?
Nonprofit corporations and associations
What happens in a share exchange?
Some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation, but both corporations continue to exist
Share exchanges are often used to create what types of companies?
Holding companies
What is a holding company?
A company that owns part or all of other companies’ outstanding stock
If one corporation owns all of the shares of another corporation, it is referred to as what?
A parent corporation
If one corporation owns all of the shares of another corporation, what is the wholly owned company referred to as?
Subsidiary corporation
The RMBCA sets forth what basic requirements in terms of merger, consolidation, and share exchange procedures?
1) BOD of each corp involved must approver the merger or share exchange plan
2) The plan must specify any terms and conditions of the merger
3) Majority of the S/Hs of each corp must vote to approve the plan at a S/Hs’ meeting
4) Once plan is approved by directors and S/Hs of both corporations, surviving corporation files the plan (articles of merger, consolidation, or share exchange) w/ the secretary of state
5) When state formalities are satisfied, the state issues a certificate of merger to the surviving corporation or a certificate of consolidation to the newly consolidated corp
What is a short-form merger also referred to as?
Parent-subsidiary merger
Can a short-form merger be completed w/o the approval of the S/Hs of either corporation?
YES
When can a short-form merger be used?
Only when parent corp owns at least 90% of the o/s shares of each class of stock of the sub corp (once BOD of parent corp approves the plan, it is filed with the state, and copies are sent to each S/H of record in the sub corp)
For extraordinary matters, who normally must approve the transaction?
Both BODs and S/Hs
What sorts of extraordinary matters generally require S/H approval?
- Mergers and other combos
- Amendments to articles of incorporation
- Dissolution of corporation
What if a S/H disapproves of a merger or a consolidation but is outvoted by the other S/Hs?
- the law will not force a dissenting S/H to become an unwilling S/H in a corporation that is new or different from the one in which the S/H originally invested
- law gives dissenting S/Hs a statutory right to be paid the FV of the shares they held on the date of the merger or consolidation (S/H’s appraisal right)
When a dissenting S/H exercises his/her appraisal right, the FV of the shares normally is the value on what day?
Day prior to the date on which the vote was taken (RMBCA 13.21)
Who establishes the procedures for asserting appraisal rights in a jurisdiction?
Each state
Why can appraisal rights be particularly important in a short-form merger?
B/c the minority S/Hs do not receive advance notice of the merger, the directors do not consider or approve it, and there is no vote
What is often the only recourse available to S/Hs who object to parent-subsidiary mergers?
Appraisal rights
A corporation that is selling all of its assets is substantially changing its business position and perhaps its ability to carry out its corporate purpose. Does it need to obtain approval from the BODs and its S/Hs before going through with the transaction?
YES
Generally, a corporation that purchases the assets of another corporation is not automatically responsible for the liabilities of the selling corporation. Are there exceptions to this rule?
Yes
When the purchasing corporation impliedly or expressly assumes the seller’s liabilities, will the acquiring corporation be held to have assumed both the assets and liabilities of the selling corporation?
YES
When the sale transaction is, in effect, a merger or consolidation of the two companies, will the acquiring corporation be held to have assumed both the assets and liabilities of the selling corporation?
YES
When the purchaser continues the seller’s business and retains the same S/Hs, directors, and officers, will the acquiring corporation be held to have assumed both the assets and liabilities of the selling corporation?
Si
When the sale is entered into fraudulently for the purpose of escaping liability, will the acquiring corporation be held to have assumed both the assets and liabilities of the selling corporation?
YES
The process of acquiring control over a corporation by purchasing a substantial number of voting shares of its stock is commonly referred to as what?
Corporate takeover
Define target corporation.
Corporation being acquired
What is a tender offer?
A proposal to buy shares of stock from a target corporation’s S/Hs either for cash or for some type of corporate security of the acquiring company
In seeking to purchase the stock of the target corporation, the acquiring corporation deals directly with the target’s S/H’s by making a what?
Tender offer
As a means of inducing S/Hs to accept the offer, the tender price offered in a takeover is generally higher than what?
Higher than the market price of the target’s stock before the tender offer was announced
After a tender offer is made, the offeror must disclose what to the SEC?
- Source of funds used in offer
- Purpose of offer
- Acquiring company’s plans for the firm if takeover is successful
If the target corporation’s management opposes the proposed takeover, what is it referred to as?
Hostile taekover
To resist a takeover, a target company may make a self-tender. What is a self-tender?
Target company offers to acquire stock from its own S/Hs and thereby retain corporate control
Explain the pac-man takeover defense.
Aggressive defense in which target corporation attempts its own takeover of the acquiring corporation
Explain the crown jewel takeover defense.
When threatened w/ a takeover, management makes the company less attractive to the raider by selling the company’s most valuable asset (the “crown jewel”) to a third party
The termination of a corporation’s existence has what two phases?
Dissolution and winding up
Explain dissolution.
Legal death of the artificial person of the corporation
Explain winding up.
Process by which corporate assets are liquidated, or converted into cash and distributed among creditors and S/Hs according to specific rules of preference
What establishes the procedures required for the voluntary dissolution of a corporation?
State corporation statutes
What are the two possible methods of voluntarily dissolving a corporation?
1) By the S/H’s unanimous vote to initiate dissolution proceedings (some states)
2) By a proposal of the BODs that is submitted to the S/Hs at a S/Hs’ meeting
When a corporation is dissolved voluntarily, what must the corporation file with the state?
Articles of dissolution
When a corporation is dissolved voluntarily, who must it notify?
Must notify its creditors of the dissolution
When a corporation is dissolved voluntarily, what must it establish?
A date (at least 120 days after the date of dissolution) by which all claims against the corporation must be received
If a corporation’s assets are liquidated w/o notice to a party who has a claim against the firm, can S/Hs of the former corporation be held personally liable for the debt?
Yes
Because corporations are creates of statute, can the state dissolve the corporation in certain circumstances?
YES
The secretary of state of the state attorney general can bring an action to dissolve a corporation that has failed to do what?
- Pay its annual taxes
- Submit required annual reports
A state court can dissolve a corporation for doing what?
Making fraudulent misrepresentations to the state during incorporation or for engaging in mismanagement
When dissolution takes place by voluntary action, the members of the BODs act as what of the corporate assets?
Trustees
What are trustees responsible for?
Winding up the affairs of the corporation for the benefit of corporate creditors and S/Hs
When dissolution is involuntary, who will the court appoint to wind up the corporate affairs and liquidate the corporate assets?
Receiver
