Takeovers Flashcards
There’s always a suspicion that the BOD may be partial to a controlling SH because the _____
controller could replace them under the default rules 141(k) and 228
Control blocks in US can be bought and sold in US without ___
having to deal with minority SHs unless known looter
Due to an absence of mandatory bid rules, a controller may sell control ___
to a buy who makes minority SHs worse off
Poison pills arose in response to a situation in the 1970s where directors had ___ but not ___
power to block unwanted mergers, the capacity to reject hostile tender offers
Examples of deal protection devices
- no-shop clauses
- lock up agreements
Deal protection devices are legal meaning that BODs don’t have to ___
drop merger agreements with one party just because another comes along and wants to buy
Unocal held that ____ are threats
low (grossly inadequate) bids
____ alone don’t force a sale
High bids
The BOD’s power to not drop one bid for another comes from ___
141
DGCL 157 authorizes the BOD to ___
issue poison pills/rights plans
151(g) says that if ____
there aren’t enough shares available to use the poison pill the BOD can issue more
What provision of the DGCL authorizes poison pills?
157
what is an interested SH
person who owns more than 15%
DGCL 203 says that interested SH cannot ____
engage in business transaction (merger, sale) with corp for three year period unless (exceptions)
What are the DGCL 203 exceptions?
- 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
The goal of poison pills is to __
make BOD a negotiating agent in tender offers
Poison pills generally work by ___
diluting acquired block of shares
If anyone triggers the pill by acquiring more than the threshold, then the corp ___
issues additional shares to all other SHs (usually enough to dilute acquiror’s stake by half)
In DE, poison pills are permissible as long as ___
they meet Unocal
For a flip-in pill, when rights flip SHs __
can purchase additional shares at a discount and hostile acquirer excluded
For a flip-over pill, the rights become exercisable upon ___
triggering event, usually completion of hostile takeover
For a flip-over pill, SHs can purchase ___
shares of acquiring company at discount
What is greenmailing
investor buys enough shares to threaten takeover and then gets paid off by target
The rationale behind the poison pill is to
- prevent greenmailing
- protect against abusive tender offer tactics
BOD does not need SH approval to adopt pills but __
charter must authorize enough shares to do it
Unocal held that due to the threat of conflict, there must be ___
enhanced BJR when BOD takes defensive measures in response to hostile bid
What are three types of threats under Airgas
- structural coercion
- opportunity loss
- substantive coercion
what is structural coercion
more favorable treatments of tendering SHs causes other SHs to tender
what is substantive coercion
SH may accept inadequate offer due to misevaluation
what is opportunity loss
SHs may lose opportunity to choose better offer proposed by management or better bidder
Unitrin held that if something is coercive/draconian/preclusive then ___
can never be proportionate and no need to continue to step 2
Two prongs of Unocal
- reasonably perceived threat
- proportionate response
Unocal blessed discriminatory defensive measures but ___
SEC subsequently prohibited so led to 109 Rights Plans
Moran made the SEC discriminatory rule ___
obsolete
Under Unocal if directors fail then ___
injunction to remove devices
Revlon held that if the BOD is to sell then it must ___ NOT ___
get highest price, use defenses to play favorites among bidders or protect non-SH groups
Under Revlon, the duty of the BOD shifts from ___ to ___
preservation of corporate entity, max SH value
Revlon court found that the company breached loyalty to SHs when it ___
favored one bidder over another out of concern for note-holders
Time Warner held that unless in Revlon world BOD no duty to max SH at expense of ___ unless ___
deliberate corporate plan, no basis to sustain corporate strategy
The defensive measures remained applied in Time Warner because __
no evidence break-up of the company was inevitable
QVC held that if a corporation undertakes a transaction that will ___ then the director’s must seek value for SH
cause change in corporate control OR break-up of corporate entity
QVC also held that you can’t rely on deal protection devices to ___
avoid Revlon duties if they are coercive and fail Unocal
Unocal and Revlon don’t apply to ___
post-closure $ damages (then need loyalty claim)
The remedy in a Revlon scenario is that ))
merger process with favored bidder stopped
What is crown jewel defense
sell most valuable asset to prevent takeover
What is white knight defense
friendly third party comes to rescue target company from hostile acquirer (Revlon)
What is the Pac-man defense
target turns tables by attempting to acquire the acquiror
What is the golden parachute defense
generous financial benefits to key executives if terminated or experience change in control
Golden parachutes make it more costly for __
acquirer to replace or terminate the BOD
Unocal held that a BOD can repurchase stock to defeat perceived threat so long as ___
not motivated primarily out of desire to perpetuate themselves in office
QVC holds that defensive measures (like no-shop) that ___ cannot ___
make it difficult or unfeasible for a corporation to accept another offer, prevent BOD from carrying out fiduciary duties
The court in QVC says that SHs should get __ because __
control premium, become minority SHs when previously no controller
DGCL 157 allows a corporation to ___
issue rights entitling right holder to purchase stock
The court disagrees with the plaintiffs in Moran that it prevents proxy contests because __
most proxy contests won on less than 20% ownership
Airgas held that the BOD’s decision to not remove a poison pill when facing hostile tender ___
is reviewed under Unocal
The court in Airgas found that while their offer was not ___ it did involve ___
structural coercion nor involved an opportunity loss, substantive coercion
Airgas found the response was in the range of reasonableness because ___
realistic to nominate another slate of directors at meeting in 8 months if don’t like tender response
Corwin facts
- 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
Corwin held that KKR was NOT __
a controlling SH
Corwin held that the transaction was subject to ___
BJR (vote)
Corwin held that even if Revlon applied the ___
BJR post-closure determines whether that value was achieved
Corwin held that Revlon does not impede the BJR because ___
Revlon designed for pre-closing injunction not post-closure $
141(k) allows ___
Majority of SHs to fire member of BOD at any time without cause
DGCL 228 allows ___
SHs to waive SH meeting
