Hostile Acquisitions Flashcards
Which of the following explanations for the existence of large takeover premiums is NOT correctly described?
A. The Exploitation Hypothesis: Buyers pay takeover premiums because they are exploiting their greater access to capital than target’s management.
B. The Synergy Hypothesis: Buyers pay takeover premiums because the targets assets will be more valuable when combined with the buyer’s assets.
C. The Disciplinary Hypothesis: Buyers pay takeover premiums because they believe they can manage the firm’s assets more efficiently than the current owners.
D. The Empire Building Hypothesis: Buyers pay takeover premiums because buyer’s managers will benefit personally from managing a larger company.
A. The Exploitation Hypothesis: Buyers pay takeover premiums because they are exploiting their greater access to capital than target’s management.
Correct Description: Bidders overreach target shareholders by exploiting temporary depressions in the target’s stock price to seize control of the target at a bargain price.
A temporary dip in stock price means buyer can offer high price but still be paying below value of target…
Buyer would like to make a tender offer for 51% of the outstanding shares of Target, Inc. at a price of $50/share, a California corporation that is publicly traded on the New York Stock Exchange. Buyer will hold the offer open for 20 business days. If more than 51% of the outstanding shares tender, Buyer will accept the offers on a pro rata basis. If Buyer does not receive sufficient tenders to reach 51% in the first ten days, he will raise the offering price to $55/share for those who tender after the price increase. Buyer will provide disclosure of his plans for the company, as well as his financing sources and some other matters. Does Buyer’s planned tender offer comply with the Williams Act?
A. No, because it must be held open for 25 business days.
B. No, because it violates the best-price rule.
C. No, because offers must be accepted on a first-come, first-served basis.
D. Yes.
B. No, because it violates the best-price rule.
Best Price Rule- consideration offered to any security holder in a tender offer must be equal to the highest consideration paid to any other security holder.
[A tender offer of more than 5% of the class triggers the Williams Act § 14(d): (Outside corporation)-Requires disclosure, a minimum duration of 20 days, the all holders rule, the Best Price Rule, proration, and gives target 10 days to offer their opinion on the plan (accept, reject, no opinion, unable to render opinion w/ explanation why)]
Target, Inc. (“Target”) was registered in Delaware and publicly traded on NASDAQ. Raider was a multi-billionaire with a long history of implementing hostile acquisitions. Raider approached Target’s CEO and made an all-cash, all-shares friendly offer for Target at a price that was 30% above the market price. The board met for eight hours to consider the offer, and heard reports from outside counsel and an investment banker as to the offer’s merits. After a lengthy discussion, the board voted to reject the offer and to implement a poison pill. A Target shareholder launched a derivative action claiming the directors’ passage of a poison pill violated their fiduciary duties to the corporation and its shareholders. The board’s best argument in defense of this suit was:
A. The board was not grossly negligent in informing itself about the merits of Raider’s offer.
B. The board did not suffer from a conflict of interest in rejecting the offer.
C. The directors were not planning to buy the company’s outstanding shares themselves.
D. The price Raider offered was inadequate.
D. The price Raider offered was inadequate.
Seller, Inc. (“Seller”) and Buyer, Inc. (“Buyer”) were both registered in Delaware and publicly traded on NASDAQ. No shareholder or unified group of shareholders owned more than 5% of either corporation. The boards of directors of the two companies agreed that Buyer would purchase all the outstanding stock of Seller in exchange for .5 shares of Buyer for every share of Seller. This would equate to a 50% premium over Seller’s market price. At the end of the transaction, Buyer’s original shareholders would own 65% of the combined entity. If a shareholder challenges this transaction in a derivative suit, the legal standard that applies will be:
A. The business judgment rule.
B. The entire fairness test.
C. Unocal.
D. Revlon.
A. The business judgment rule.
A derivative suit involves a two-step process: (1)The SH’s sue the corporation to compel the corporation to sue the board and (2) The Corp, on behalf of the shareholders, sues the directors.
In Delaware, in order to bring a derivative suit, a shareholder must satisfy the requirements of rule 23, including the
(1) contemporaneous ownership rule;
(2) demand requirement; and overcome (if demand made and rejected–>BJR OR if no demand made–>BJR protection)
(3) the opportunity for dismissal by an independent subcommittee of the board.
Shareholders of a Delaware corporation passed a shareholder resolution that required the board to include up to three candidates nominated by shareholders who owned at least 1% of the company’s outstanding shares on the company’s proxy form (the “proxy resolution”). They also passed a separate shareholder resolution that required the board to reimburse any shareholder for expenses that shareholder incurred in connection with the successful election of a director who was not on the board’s slate of nominees (the “expenses resolution”). Both resolutions purport to be binding, not precatory. Which of these resolutions is valid under Delaware law?
check
A. Both are valid.
B. The proxy resolution, but not the expenses resolution.
C. The expenses resolution, but not the proxy resolution.
D. Neither is valid.
A. Both are valid.
Under rule 14a-8, a shareholder who has owned at least either $2,000 or 1% of a company’s stock for at least one year may have a shareholder proposal and short statement on the company’s proxy.
Also, Shareholders can pass bylaws that require corporation to include shareholder nominees to the board on corporation’s proxy form. Del.§112
Here, the first SH resolution is fine under 14a-8 and DE §112
Second SH resolution is good too bc of DE §113
* Shareholders can pass bylaw that requires corporation to reimburse shareholders for their expenses incurred in connection w/ soliciting proxies for a board election. Del.§113
