Friendly Acquisitions Flashcards
Target, Inc. (“Target”) and Survivor, Inc. (“Survivor”) were both registered in Delaware. The CEOs of the two companies decided they wanted to merge Target into Survivor, with Survivor as the surviving corporation. Survivor would pay $500 million in cash for all of Target’s outstanding shares. Which of the following statements is FALSE?
A. After the merger, all of the assets and liabilities of target belong to Survivor.
B. The dissenting shareholders of both Target and Survivor are entitled to appraisal rights.
C. The merger must be approved by the board of directors of Survivor to be effective.
D. Once the plan of merger is approved, it must be filed with a state official for the merger to become complete.
B. The dissenting shareholders of both Target and Survivor are entitled to appraisal rights.
Sale of assets under §271-only the sellers SHs are entitled to appraisal rights, not buyer’s SHs bc it’s considered ordinary course of business to buy assets for the corporation.
Client, Inc. would like to acquire Target, Inc. Both companies are registered in Delaware. Attorney explained that Client, Inc. could structure the transaction as either a merger or an asset purchase and that the choice of the transaction form would have important consequences. Attorney made all of the following statements about the different consequences of choosing a merger versus an asset purchase. Which statement was FALSE?
A. In an asset sale, the target company’s liabilities do not automatically transfer to the buying company.
B. In an asset sale, the selling corporation does not automatically dissolve after the sale is complete.
C. In an asset sale, the selling corporation does not require its shareholders’ approval.
D. In an asset sale, the buying corporation does not require its shareholders’ approval.
C. In an asset sale, the selling corporation does not require its shareholders’ approval.
Shareholder Vote: The seller’s shareholders have a right to vote when the seller is selling all or substantially all of its assets, and need a majority of SH vote approval.
Seller owned 60% of the outstanding shares of Books, Inc. (“Books”), a Delaware corporation whose remaining shares were publicly traded on NASDAQ. Seller selected all five members of Books’ board of directors. Seller sold her Books shares to Buyer for a 30% premium over the market price. The sale agreement required Buyer to pay the public shareholders the same price if he bought those shares within one year. Buyer waited one year and a day and then implemented a cash-out merger with a company he wholly owned, paying the public shareholders the fair market price for their shares. If the public shareholders sue for breach of Buyer’s fiduciary duty, what is the most likely outcome under Delaware law?
A. The public shareholders will win and get the same price Seller got, because Buyer breached his fiduciary duty.
B. The public shareholders will win and get the same price Seller got, because there was no business purpose for the cash-out merger.
C. The public shareholders will lose because they are limited to their appraisal rights.
D. The public shareholders will lose because transaction was at a fair price.
A. The public shareholders will win and get the same price Seller got, because Buyer breached his fiduciary duty.
Limited Fiduciary Duty: The only remedy for SH’s whose claim merely related to judgment factors of valuation of their sock is an appraisal.
However, a separate action for breach of fiduciary duty can stand where there is fraud, misrepresentation, self-dealing, or gross and palpable overreaching (Weinberger)?
Buyer approached Majority Shareholder and offered to pay $100 per share for all of Corporation’s outstanding stock. Corporation was an Oregon corporation, and Majority Shareholder owned 60% of its stock. Majority Shareholder refused but offered to sell her own 60% stake for $150/share. Buyer agreed. After the sale, Buyer purchased the remaining 40% from the two minority shareholders in a negotiated transaction for $50/share. Neither Buyer nor Majority Shareholder disclosed Buyer’s initial offer to buy all the outstanding shares for $100/share. Which of the following statements is MOST correct?
A. Majority Shareholder violated his fiduciary duty to the minority shareholders only by refusing Buyer’s initial offer.
B. Majority Shareholder violated his fiduciary duty to the minority shareholders only by failing to disclose Buyer’s initial offer to the minority shareholders.
C. Majority Shareholder violated no fiduciary duties during this transaction.
D. Majority Shareholder violated his fiduciary duty to the minority shareholders both by refusing Buyer’s initial offer and by failing to disclose Buyer’s initial offer to the minority shareholders.
C. Majority Shareholder violated no fiduciary duties during this transaction.
Controlling shareholder owes no fiduciary duty to the minority to disclose offers to purchase the company’s stock or a control block of stock. Tyron v. Smith (Oregon 1951)
Shareholder, who owned 5% of the outstanding shares of Corporation, Inc., a Delaware corporation, had a strong claim against the directors for breach of their fiduciary duty of care. In obedience to Delaware Rule of Civil Procedure 23.1, Shareholder sent the directors a formal demand that they cause the corporation to sue themselves. The directors voted unanimously to reject the demand. What are Shareholder’s legal rights at this point?
A. The shareholder may proceed with the suit if and only if the shareholder can demonstrate that the suit would be of great value to the corporation.
B. The shareholder may proceed with the suit if and only if the shareholder posts a bond for the amount reasonably likely to be spent by the corporation in participating in the suit.
C. The shareholder may proceed with the suit only if the shareholder establishes that the board’s decision denying demand violated the business judgment rule.
D. The board’s decision is final.
C. The shareholder may proceed with the suit only if the shareholder establishes that the board’s decision denying demand violated the business judgment rule.
In derivative acitons where the SH makes demand and it is rejected, the BJR protects the board’s decision. Unless Rales,
Rales also applies when the conduct that is the subject of the derivative suit was not a decision by the board. For example, Rales applies when the underlying complaint is a Caremark claim (i.e., violation of the duty of care (duty to monitor))??
