Takeovers

Question 1

There’s always a suspicion that the BOD may be partial to a controlling SH because the _____

Answer 1

controller could replace them under the default rules 141(k) and 228

Question 2

Control blocks in US can be bought and sold in US without ___

Answer 2

having to deal with minority SHs unless known looter

Question 3

Due to an absence of mandatory bid rules, a controller may sell control ___

Answer 3

to a buy who makes minority SHs worse off

Question 4

Poison pills arose in response to a situation in the 1970s where directors had ___ but not ___

Answer 4

power to block unwanted mergers, the capacity to reject hostile tender offers

Question 5

Examples of deal protection devices

Answer 5

• no-shop clauses
• lock up agreements

Question 6

Deal protection devices are legal meaning that BODs don’t have to ___

Answer 6

drop merger agreements with one party just because another comes along and wants to buy

Question 7

Unocal held that ____ are threats

Answer 7

low (grossly inadequate) bids

Question 8

____ alone don’t force a sale

Answer 8

High bids

Question 9

The BOD’s power to not drop one bid for another comes from ___

Answer 9

141

Question 10

DGCL 157 authorizes the BOD to ___

Answer 10

issue poison pills/rights plans

Question 11

151(g) says that if ____

Answer 11

there aren’t enough shares available to use the poison pill the BOD can issue more

Question 12

What provision of the DGCL authorizes poison pills?

Answer 12

157

Question 13

what is an interested SH

Answer 13

person who owns more than 15%

Question 14

DGCL 203 says that interested SH cannot ____

Answer 14

engage in business transaction (merger, sale) with corp for three year period unless (exceptions)

Question 15

What are the DGCL 203 exceptions?

Answer 15

• BOD approved business combo before interested SH became interested SH
• ISH acquires 85% stock in single transaction
• after becoming controller business combo approved by 2/3 disinterested SHs

Question 16

The goal of poison pills is to __

Answer 16

make BOD a negotiating agent in tender offers

Question 17

Poison pills generally work by ___

Answer 17

diluting acquired block of shares

Question 18

If anyone triggers the pill by acquiring more than the threshold, then the corp ___

Answer 18

issues additional shares to all other SHs (usually enough to dilute acquiror’s stake by half)

Question 19

In DE, poison pills are permissible as long as ___

Answer 19

they meet Unocal

Question 20

For a flip-in pill, when rights flip SHs __

Answer 20

can purchase additional shares at a discount and hostile acquirer excluded

Question 21

For a flip-over pill, the rights become exercisable upon ___

Answer 21

triggering event, usually completion of hostile takeover

Question 22

For a flip-over pill, SHs can purchase ___

Answer 22

shares of acquiring company at discount

Question 23

What is greenmailing

Answer 23

investor buys enough shares to threaten takeover and then gets paid off by target

Question 24

The rationale behind the poison pill is to

Answer 24

• prevent greenmailing
• protect against abusive tender offer tactics

Question 25

BOD does not need SH approval to adopt pills but __

Answer 25

charter must authorize enough shares to do it

Question 26

Unocal held that due to the threat of conflict, there must be ___

Answer 26

enhanced BJR when BOD takes defensive measures in response to hostile bid

Question 27

What are three types of threats under Airgas

Answer 27

- structural coercion - opportunity loss - substantive coercion

Question 28

what is structural coercion

Answer 28

more favorable treatments of tendering SHs causes other SHs to tender

Question 29

what is substantive coercion

Answer 29

SH may accept inadequate offer due to misevaluation

Question 30

what is opportunity loss

Answer 30

SHs may lose opportunity to choose better offer proposed by management or better bidder

Question 31

Unitrin held that if something is coercive/draconian/preclusive then ___

Answer 31

can never be proportionate and no need to continue to step 2

Question 32

Two prongs of Unocal

Answer 32

- reasonably perceived threat - proportionate response

Question 33

Unocal blessed discriminatory defensive measures but ___

Answer 33

SEC subsequently prohibited so led to 109 Rights Plans

Question 34

Moran made the SEC discriminatory rule ___

Answer 34

obsolete

Question 35

Under Unocal if directors fail then ___

Answer 35

injunction to remove devices

Question 36

Revlon held that if the BOD is to sell then it must ___ NOT ___

Answer 36

get highest price, use defenses to play favorites among bidders or protect non-SH groups

Question 37

Under Revlon, the duty of the BOD shifts from ___ to ___

Answer 37

preservation of corporate entity, max SH value

Question 38

Revlon court found that the company breached loyalty to SHs when it ___

Answer 38

favored one bidder over another out of concern for note-holders

Question 39

Time Warner held that unless in Revlon world BOD no duty to max SH at expense of ___ unless ___

Answer 39

deliberate corporate plan, no basis to sustain corporate strategy

Question 40

The defensive measures remained applied in Time Warner because __

Answer 40

no evidence break-up of the company was inevitable

Question 41

QVC held that if a corporation undertakes a transaction that will ___ then the director's must seek value for SH

Answer 41

cause change in corporate control OR break-up of corporate entity

Question 42

QVC also held that you can't rely on deal protection devices to ___

Answer 42

avoid Revlon duties if they are coercive and fail Unocal

Question 43

Unocal and Revlon don't apply to ___

Answer 43

post-closure $ damages (then need loyalty claim)

Question 44

The remedy in a Revlon scenario is that ))

Answer 44

merger process with favored bidder stopped

Question 45

What is crown jewel defense

Answer 45

sell most valuable asset to prevent takeover

Question 46

What is white knight defense

Answer 46

friendly third party comes to rescue target company from hostile acquirer (Revlon)

Question 47

What is the Pac-man defense

Answer 47

target turns tables by attempting to acquire the acquiror

Question 48

What is the golden parachute defense

Answer 48

generous financial benefits to key executives if terminated or experience change in control

Question 49

Golden parachutes make it more costly for __

Answer 49

acquirer to replace or terminate the BOD

Question 50

Unocal held that a BOD can repurchase stock to defeat perceived threat so long as ___

Answer 50

not motivated primarily out of desire to perpetuate themselves in office

Question 51

QVC holds that defensive measures (like no-shop) that ___ cannot ___

Answer 51

make it difficult or unfeasible for a corporation to accept another offer, prevent BOD from carrying out fiduciary duties

Question 52

The court in QVC says that SHs should get __ because __

Answer 52

control premium, become minority SHs when previously no controller

Question 53

DGCL 157 allows a corporation to ___

Answer 53

issue rights entitling right holder to purchase stock

Question 54

The court disagrees with the plaintiffs in Moran that it prevents proxy contests because __

Answer 54

most proxy contests won on less than 20% ownership

Question 55

Airgas held that the BOD's decision to not remove a poison pill when facing hostile tender ___

Answer 55

is reviewed under Unocal

Question 56

The court in Airgas found that while their offer was not ___ it did involve ___

Answer 56

structural coercion nor involved an opportunity loss, substantive coercion

Question 57

Airgas found the response was in the range of reasonableness because ___

Answer 57

realistic to nominate another slate of directors at meeting in 8 months if don't like tender response

Question 58

Corwin facts

Answer 58

- KKR buyout of Financial Holdings which was managed by affiliate of KKR - fully informed SH vote - KKR no veto power, 1% of stock and no right to appoint directors

Question 59

Corwin held that KKR was NOT __

Answer 59

a controlling SH

Question 60

Corwin held that the transaction was subject to ___

Answer 60

BJR (vote)

Question 61

Corwin held that even if Revlon applied the ___

Answer 61

BJR post-closure determines whether that value was achieved

Question 62

Corwin held that Revlon does not impede the BJR because ___

Answer 62

Revlon designed for pre-closing injunction not post-closure $

Question 63

141(k) allows ___

Answer 63

Majority of SHs to fire member of BOD at any time without cause

Question 64

DGCL 228 allows ___

Answer 64

SHs to waive SH meeting