Introduction

Question 1

Flow of a Deal - Initial Communications + tone

Answer 1

• Casual – CEOs/Management types rubbing elbows
• Somewhat Casual – Financial Intermediary employed
• Formal – Offer Letter sent to Board of Directors of Target
  
  • “Bear Hug” to a “Sleeping Beauty”
• Not-So-Formal – nor all that friendly
  
  • “Dawn Raid”
  • “Godfather Offer”
    
    • Hard to refuse; if you don’t do something, you’re going to get sued by your shareholders

Question 2

Flow of a Deal - Entry of Financial Advisors

Answer 2

• Investment Bankers
  
  • Provide financial advice and various financial services
  • Assess the condition of the market and specific market sectors
• Attorneys
  
  • Assist in proper structuring of transaction
  • Assure ongoing compliance with applicable legal rules
  • Assess legal strengths and vulnerabilities of Bidder/Target
  • Facilitate deal execution (e.g., drafting Confidentiality Agreements, drafting Board Resolutions, etc.)
• Accountants
  
  • Accurate assessment of financial posture of Bidder/Target

NOTE: Assessment of Bidder particularly important when non-cash consideration is contemplated in the merger or acquisition

Question 3

Flow of a Deal - Due Diligence

Answer 3

• Thorough “Cross-Examination”
  
  • Bidder’s Goal – Pay enough but not too much
  • Target’s Goal – Ensure that enough is paid
    
    • Cash Deal – Minimal due diligence
    • Equity Consideration – Broader due diligence
• Importance of Confidentiality Agreements

Question 4

Flow of a Deal - Board Approval

Answer 4

• Thorough analysis of the proposed deal
  
  • Critical management oversight function
• Reasoned approval or disapproval
  
  • Enhanced accountability for decisions

Question 5

Flow of a Deal - Shareholder Approval

Answer 5

• Often required per state law
• Federal law may play a role

Question 6

Flow of a Deal - Potential Regulatory/Specialist Approval

Answer 6

• Antitrust regulators protecting interests not represented in the formal deal-making process (e.g., customers of regulated industry participants)
• Mandatory consultation with specialists to ensure continued compliance with specific requirements

Question 7

Flow of a Deal - Closing of Transaction

Answer 7

Final steps taken, assuming “Conditions Precedent to Closing” have been satisfied

Question 8

Flow of a Deal

Answer 8

1. Initial Communications
2. Entry of Financial Advisors
3. Due Diligence
4. Board Approval
5. Shareholder Approval
6. Potential Regulatory/Specialist Approval
7. Closing of Transaction

Question 9

Why do M&A Deals Occur?

Answer 9

Various reasons, including:

1. Enhance operating efficeincy
2. Enhance market power
3. Reduce competition

Question 10

M&A Activity TEnds to Spike in Phases because…

Answer 10

• Dismantling of regulatory barriers (i.e., changes in state or federal law, generally speaking)
• Technological change
• The need to globalize efficiently
• The inflation of stock prices

Question 11

What is the Internal Affairs Doctrine?

Answer 11

Internal affairs doctrine = the law of the state where the business has decided to incorporate will govern the internal affairs of the corporation

Question 12

Common Fundamental Changes

Answer 12

• Certain amendments to the Articles of Incorporation
• Mergers and Share Exchanges
• Disposition of All or “Substantially All” Assets OUTSIDE Regular Course of Business

Question 13

Problem of Unanimous Shareholder Approval Requirements

Answer 13

• State corporation codes used to require unanimous shareholder approval of certain fundamental changes
  
  • A minority shareholder could prevent a transaction that was clearly in the corporation’s best interests
• Some jurisdictions resorted to a “super-majority” standard (67% or 75% approval)
• Today, dominant approach is “absolute majority” standard (approval by a majority of outstanding shares entitled to vote)

Question 14

Public Policy Concerns: Two Major Sources of Minority Shareholder Protection

Answer 14

1. Appraisal Rights
2. Fiduciary Duty Law

Question 15

Appraisal Rights =

Answer 15

Allow dissenting shareholder to foce corporation to purchase shares for cash at FMV.

Question 16

Fiduciary Duty Law =

Answer 16

1. Duty of Care
2. Duty of Loyalty
3. Impact of Sarbanes-Oxley Act (“SOX”)

Question 17

Duty of Care

Answer 17

• board has fiduciary duties to the corporation itself
  
  • Fiduciary duty requires the board to conduct the affairs of the company in good faith and in a manner they reasonably believe to be in the company’s best interests
  • Duty of care = the board must be informed in its decision-making capacity and devote attention to oversight
  • The “shareholder primacy model” (albeit controversial) dictates that this duty be exercised to protect the interests of common stock holders
  • Business judgment rule –> deference to board decisions
    
    • Board may have to clear higher hurdle to secure and justify deference dictated by business judgment rule

Question 18

Duty of Loyalty =

Answer 18

• deference to board decisions
  
  • Board may have to clear higher hurdle to secure and justify deference dictated by business judgment rule

Question 19

Impact of Sarbanes-Oxley Act (“SOX”) and its problems

Answer 19

• basically sent the decision police into the corporate boardroom
  
  • Various problems:
    
    1. Non-independent directors
    2. Excessive delegation of decision-making to management
    3. Shareholder lockout

Question 20

What kind of Acquisition is this?

Answer 20

Direct Merger (“Statutory Merger”)

Question 21

What kind of Acquisition is this?

Answer 21

Asset Purchase for Cash

Question 22

What kind of Acquisition is this?

Answer 22

Stoch Purchase for Cash

Question 23

What kind of Acquisition is this?

Answer 23

Forward Triangular Merger

Question 24

What is this the Stock Consideration for?

Answer 24

Forward Triangular Merger

Question 25

What kind of Acquisition is this?

Answer 25

Reverse Triangular Merger

Question 26

What is this a Stock Consideration for?

Answer 26

Reverse Triangular Merger

Question 27

Methods for Structuring Business Acquisitions

Answer 27

1. Direct Merger (“statutory merger”)
2. Asset Purchase for Cash
3. Stock Purchase for Cash
4. Forward Triangular Merger
5. Reverse Triangular Merger