Corporate Takeover Market

Question 1

Name 5 general regulatory considerations?

Answer 1

Federal security laws
Antitrust
Environmental
Racketeering 
Employee Benefits

Question 2

Name 7 industry specific regulatory considerations?

Answer 2

Public utilities
Insurance
Banking
Broadcasting
Telecom
Defense 
Transportation

Question 3

Describe the 1933 Securities Act

Answer 3

Required investors to receive financial and other significant information concerning securities being offered for public sale
Prohibited deceit, misrepresentations, and other fraud in the sale of securities

Question 4

Describe the Securities Act of 1934

Answer 4

Supervision of new security offerings
Ongoing reporting requirements
Conduct of security exchanges
Created the SEC

Question 5

Describe the Sarbanes-Oxley Act

Answer 5

Corporate governance, disclosure, and conflicts of interest

Question 6

Facilitate competitiveness in an industry

Answer 6

Antitrust

Question 7

Name the two regulatory bodies that can get involved in an antitrust issue?

Answer 7

Enforced by Department of Justice and Federal Trade Commission

Question 8

Name the important legislation for the Antitrust Laws

Answer 8

Important legislation: Sherman Act (1890), Clayton Act (1914), Hart-Scott-Rodino Act (1976)

Question 9

Herfindahl-Hirschman Index (HHI)

Answer 9

sum of the squared market shares (%) of all companies within the industry
A commonly accepted measure of market concentration.

Question 10

Industry HHI < 1000

Answer 10

Unconcentrated

Question 11

1000 ≤ Industry HHI ≤ 1800

Answer 11

Moderate Concentration

Question 12

1800 < Industry HHI

Answer 12

(HIGHLY) Concentrated

Question 13

Describe the Gramm-Leach-Bliley Act of 1999

Answer 13

Overturned Glass-Steagall
Provide more stable and countercyclical business model for these banks
Allow U.S. banks to better compete with international counterparts (e.g., UBS, Credit Suisse, Deutsche Bank)
Led to formation of U.S.-based universal investment banks (e.g., JPM, Citigroup, and BoA)

Question 14

Describe the Sarbanes Oxley Act

Answer 14

Corporate governance, disclosure, and conflicts of interest
Separated stock analysis from underwriting activities
Created Public Company Accounting Oversight Board

Question 15

Name the five state level antitakeover statues

Answer 15

Control share statues
Fair price statutes
Business combination statutes
Poison pill statutes
Constituencies statutes

Question 16

Control share statutes:

Answer 16

effectively forces a shareholder vote to proceed with a hostile bid

Question 17

Fair price statutes:

Answer 17

requires bidders to pay all shareholders the same price for their shares, regardless of when they are tendered

Question 18

Business combination statutes:

Answer 18

: imposes a waiting period for combining the assets of the bidder and target following a takeover

Question 19

Poison pill statutes:

Answer 19

: dilutes the bidder’s ownership stake by allowing target firm shareholders to purchase more shares at a discount (when triggered)

Question 20

Constituencies statutes:

Answer 20

allows management to take into consideration constituencies other than shareholders when evaluating a takeover proposal

Question 21

What is corporate governance?

Answer 21

External/Internal mechanisms that impact the balance of power between insiders and outsiders

Question 22

Name four internal mechanisms of corporate governance?

Answer 22

Board of directors
Financial reporting
Incentive systems
Antitakeover defenses

Question 23

Name five external mechanisms of governance?

Answer 23

Regulators
Laws
Outside owners
Managerial labor market
Corporate control market

Question 24

Define a friendly takeover tactic?

Answer 24

acquirer and target agree on key issues

Question 25

Define an aggressive takeover tactic?

Four types?

Answer 25

target management resists acquirer

• success factors
• bear hugs
• proxy contest
• hostile tender offer