Terms Flashcards
Indemnification
The action of compensating for loss or damage sustained.
Limited Partner
A partner who receives profits from the business, but does not take part in managing the business, and is not liable for any amount greater than his or her original investment.
Lock-Up
A defense against a corporate takeover in which a friendly party is entitled to buy parts of a corporation for a set price when a person or group acquires a certain percentage of the corporation’s shares.
Short-Form Merger
A statutory merger that is less expensive and time-consuming than an ordinary statutory merger, usually permitted when a subsidiary merges into a parent company that already owns most of the subsidiary’s shares.
Tender Offer
A public offer to buy a minimum number of shares directly from a corporation’s shareholders at a fixed price, usually at a substantial premium over the market price, in an effort to take control of the corporation.
Appraisal Right
The statutory right of a corporation’s minority shareholders to have a fair stock price be determined by a judicial proceeding or independent valuator, and the obligation for the acquiring corporation to repurchase shares at that price.
Freeze-Out
An action taken by a firm’s majority shareholders that pressures minority holder to sell their stakes in the company.
Hostile Bid
A specific type of takeover bid that is presented directly to the target firm’s shareholders because the target’s management is not in favor of the deal.
Takeover
A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.
Friendly Takeover
A situation in which a target company’s management and board of directors agree to a merger or acquisition by another company. (1) public offer whose (2) buyout terms are publicly approved by the board, and (3) is usually approved by a shareholder vote.
Self-Tender
A form of takeover defense against a hostile bid in which the target company undertakes a tender offer for its own shares. The objective of the self tender is to make the cost of acquiring the company prohibitively expensive to the hostile bidder, or reducing its attraction by adding debt to finance the offer, to the point where the bidder may be forced to walk away from the deal.
“Flip-in” Poison Pill
Defensive measure that allows EXISTING shareholder to buy more shares at a discount
“Flip-over” Poison Pill
Defensive measure that allows stockholders to buy the acquirer’s shares at a discounted price after the merger.
Leveraged Buyout (LBO)
The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company (leverage the assets of both companies as collateral to make the deal). The purpose of a leverage buyout is to allow companies to make large acquisitions without having to commit a lot of capital.
Management Buyout (MBO)
An instance whereby the managers and/or executives of a firm purchase a controlling interest in the company from existing majority shareholders. In most MBOs, the management group is required to borrow large sums of capital in order to afford to payout existing shareholders, which as a result leads to the firm holding a greater amount of debt on its balance sheet. In a majority of MBO cases, management will buy out the outstanding shareholders (public) and take the company private, under the belief that the management group has the expertise to lead the business successfully if it controls ownership.
