Mergers, Acquisitions, and Takeovers

Question 1

Unocal: Test

Answer 1

(1) Does the board have the power?
Does the Delaware Statute authorize the board to take this defensive action; if so, does the corporate charter place any limits on this defensive measure?
(2) did the board have reasonable grounds to believe that a danger to the corporate policy and effectiveness existed?
May satisfy this burden by showing good faith and reasonable investigation
(3) was the defense reasonable in relation to the threat posed? Was there good faith?

Question 2

Unocal: Factors

Answer 2

Good Faith?

• • Inadequacy of the price offered
• • Nature and timing of the offer
• • Questions of illegality
• • Impact on constituencies other than shareholders
• • Risk of non-consummation
• • Quality of securities being offered; “junk bonds”
• • The basic stockholder interest at stake

Question 3

Revlon: Duties

Answer 3

When the Board of Directors is no longer taking action to preserve the company (takeover is inevitable) or change in control, then the Board of Directors has the duty to maximize the value received by the shareholders in transaction.

Question 4

Revlon: In Play

Answer 4

Duties do not arise simply because a company is “in play”; the duty to seek the best available price applies only when a company embarks on a transaction–on its own initiative or in response to an unsolicited offer–that will result in a change in control.

Question 5

Revlon: When Duties are Envoked

Answer 5

• • Merger results in a loss of control or corporate change
• • Active bidding process
• • In response to a bidders offer, the target corporation abandons its long term strategy and seeks an alternative transaction involving the break up of the company.

Question 6

Revlon: What constitutes a failure? (Likely scenario)

Answer 6

When the Board fails to engage in a more proactive sale process may constitute a breach of good faith; when a board doesn’t process reliable evidence of the market value of the entity as a whole, the lack of an active sales effort is strongly suggestive of a Revlon breach.

Question 7

Revlon: Defensive Measures

Answer 7

Board must get the best value for the shareholders in defensive measures, too (adds defensive measures to maximizing shareholder value in revlon duties) (Paramount Communications v. QVC)

Question 8

De-Facto Merger

Answer 8

Transaction that has the substantive effect of a merger; transaction “so fundamentally changes the corporate character of a corporation … would effectively force shareholder to give up stock for the other company against his will.”

• • NO DE-FACTO MERGER IN DE LAW
• • the agreement is losing the essential nature of the agreement and alters the relations
• • Corporation would want to avoid a merger in order to avoid vote and appraisal rights; wouldn’t matter to the targeted company because they would still have the same rights; only affects the acquiring company

Question 9

Freeze-Out Merger

Answer 9

Plaintiff must plead sufficient facts demonstrating the unfairness of the challenged merger;

• • Initial burden on plaintiff attacking the merger to demonstrate some basis for invoking the fairness obligation (Intrinsic Fairness)
• • Defendant then has burden to show that the corporate action had been approved by an INFORMED vote of a majority of the minority shareholders
• • Burden shifts to the plaintiff to show that the transaction was unfair to the minority

Question 10

Freeze-Out Merger: Fairness

Answer 10

Did the defendants disclose all information in their possession germane to the transaction?

• • Germane: reasonable shareholder would consider important in deciding whether to sell or retain stock
• • Completeness, not adequacy; required
• • When directors of a DE Corp are on both sides of the transaction, they are required to demonstrate their utmost good faith and most scrupulous inherent fairness of the bargain
• • Fairness: fair dealing and fair price

Question 11

Mass. Freeze-Out

Answer 11

Mass. vs. Del.: legitimate business purpose is required

• -business purpose
• -fair

Question 12

LLC Mergers

Answer 12

ALLOWED: BUT, minority shareholders owe a duty of loyalty to inform majority shareholders in advance of any plans for a merger or the structure of a merger;
– managers that fail to provide notice to all board members of their intent to hold a meeting or seek consent to a written resolution violate their fiduciary duties to each other, even if they believe that keeping an individual member from voting at the meeting is in the company’s best interest