Mergers and Acquisitions Law
Authors:
Gevurtz, Franklin A. / Sautter, Christina M.
Edition:
1st
Copyright Date:
2019
15 chapters
have results for mergers and acquisitions
Chapter 4. DIRECTORS’ DUTIES AND LIABILITIES TO SHAREHOLDERS IN MERGERS AND ACQUISITIONS 203 507 results (showing 5 best matches)
- Like Gaul, this chapter is divided into three parts: decisions approving a merger or acquisition (saying yes); decisions opposing a merger or acquisition (saying no); and decisions doing both by favoring one merger or acquisition, and, at the same time, opposing another merger or acquisition (saying yes and no). In each instance, a central focus of the discussion will be on asking whether courts apply different standards in reviewing board decisions involving mergers and acquisitions than courts apply in reviewing other board decisions challenged by shareholders, and, if so, whether and when such different treatment of board decisions involving mergers and acquisitions is justified.
- More broadly, mention of antitrust law reminds us that mergers and acquisitions are not always good things. Hence, less tender offers might also mean less mergers and acquisitions that produce socially inefficient externalities by reducing competition, reneging on implied commitments to workers and creditors, or allowing managers to engage in wasteful empire building. This, in turn, suggests that views about allowing directors to resist tender offers often become a proxy for one’s broader views about the overall social desirability of mergers and acquisitions.
- At first glance, judicial review of board decisions approving mergers and acquisitions appears to involve nothing more than the application of the same approaches courts use to review any other decision by corporate directors when challenged by shareholders. Closer inspection, however, might lead to the suspicion that Delaware courts have altered the rule when it comes to reviewing board approval of mergers and acquisitions.
- In looking at judicial standards for reviewing board decisions, it is helpful to keep in mind the goals for judicial review of such decisions. One is to deter unintended harm to shareholders from lazy or dumb decisions (in other words, violations of a duty of care). A second goal is to protect shareholders from directors sacrificing the shareholders’ interest in favor of the directors’ own interest or the interest of someone controlling the directors (in other words, violations of a duty of loyalty). A third goal is to referee power disputes between the board and shareholders. While this third goal only rarely arises in reviewing board decisions outside of the mergers and acquisitions context, it becomes critically important in this context and provides one of the primary reasons for applying different standards in reviewing certain board decisions involving mergers and acquisitions. Incidentally, while Delaware law is a continuing source of attention ...directors involving mergers...
- One might understand the problem better by viewing it through the lens of antitrust law. Coordinated action by competing sellers to force buyers to pay a higher price than otherwise resulting from the atomistic actions of individual sellers is known as price-fixing and can get folks thrown in jail. This is because such an effort to raise the price means that sales will not take place at a price at which sellers would otherwise have been willing to sell and buyers would have been willing to pay—in other words, economically efficient contracts will not be made. Instead, prospective buyers unwilling to pay the higher price resulting from the sellers’ coordinated action will purchase something else, with a resulting suboptimal allocation of societal resources. Put in terms of corporate mergers and acquisitions, if higher prices for each individual tender offer result in less tender offers, the result can be less mergers and acquisitions that move resources to higher valued uses,...
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Chapter 2. ILLEGAL MERGERS AND ACQUISITIONS 59 91 results (showing 5 best matches)
- Reflecting the assumption that mergers and acquisitions involving larger transactions and companies are more likely to have an anticompetitive impact than mergers and acquisitions involving smaller transactions and companies, the size of the transaction and companies involved is a determinant of whether the companies must notify the FTC of a proposed merger or acquisition. There are two alternative tests triggering a duty to notify:
- Sections 1 and 2 of the Sherman Act (prohibiting contracts and combinations that restrain trade, and monopolization, respectively) can reach mergers and acquisitions that have an anticompetitive effect or result in monopoly power. The primary antitrust statute addressing mergers, however, is Section 7 of the Clayton Act. This provision’s role grew after Congress amended it in 1950, both to extend its reach to mergers and acquisitions regardless of whether structured as an acquisition of assets or of stock, under the antitrust statutes as they previously existed that Congress felt were too tolerant of mergers. Section 7 prohibits mergers and acquisitions that may substantially lessen competition or tend to create a monopoly in any line of commerce. The U.S. Department of Justice (DOJ) and the Federal Trade Commission enforce the prohibitions on anticompetitive mergers under the U.S. antitrust laws.
- As discussed in the prior chapter, some mergers and acquisitions potentially harm consumers or other persons beyond the firms involved in the transaction. As a result, various statutes can block certain mergers and acquisitions from occurring.
- Historically, a primary legal and public policy focus when addressing mergers and acquisitions was the potentially negative impact of the transaction on competition and thereby consumers—the subject of the antitrust laws. Perhaps regrettably, the influence of the “Chicago school” of antitrust policy and the “Reagan revolution” led to decreased enforcement of antitrust laws, including towards mergers, and accordingly there is now less attention to this topic. Nevertheless, antitrust concerns still result in blocking the occasional merger and in forcing modifications of even more.
- As originally written in 1914, Section 7 only addressed acquisitions of stock, because Congress was reacting to the role holding companies played in the formation of monopolies like the Standard Oil Company. As evident from this change, while it is common in the antitrust context to refer to “mergers”, the reach of Section 7 and the Sherman Act go beyond what is technically a merger under state corporate law to pick up corporate combinations and acquisitions no matter how structured.
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Preface v 5 results
- This book provides a comprehensive exploration of the various laws addressing mergers and acquisitions. This includes, of course, corporate laws, as well as securities laws, tax laws, antitrust laws, and other regulatory regimes impacting mergers and acquisitions. This book also explores the broader business and contracting issues that form the necessary background for attorneys involved in mergers and acquisition practice and that impact normative discussions in the field.
- In the most recent year for which statistics are available, the total value of mergers and acquisitions in the United States was almost one and one-half trillion dollars, while the worldwide total was more than twice that. This means that mergers and acquisitions are a central feature of modern business with significant implications for the overall economy. It also means that transactional planning for, and litigation over, mergers and acquisitions are a major focus for business lawyers. Indeed, most deals of more than $100 million in the United States spawn multiple lawsuits challenging the directors’ decision to merge. As a result, whether one looks at the matter from the standpoint of the many practicing attorneys who work in the field or from the standpoint of broader public policy, the laws governing mergers and acquisitions are of substantial importance.
- Our goal is to both clarify and comment. While we have tried to present the conflicting viewpoints about the laws in this field, we have not hesitated to present our own views regarding what the law is and what it should be. We hope that this approach will aid students and practicing attorneys to better understand and be able to apply the laws in the field, whether it is in the context of litigation or as transactional attorneys seeking to avoid litigation. We also hope that this work will aid courts to resolve the difficult issues they face in mergers and acquisitions litigation and that other commentators in the field will find things to reinforce and challenge their thinking.
- While we view this as a serious work, this does not mean it is written in an inaccessible style. Indeed, we have strived for a casual style and even tried to have a bit of fun in writing this book. We hope the reader enjoys the puns and other word play.
- Our thanks to Nicholas Algero, Virginia Brown, Dustin Cooper, Kaitlyn Daniel, Emily Gauthier, and Madison Hentze for their research, cite-checking, and proofreading assistance.
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Chapter 1. BUSINESS CONTEXT 1 280 results (showing 5 best matches)
- A mini industry in economic, business and law scholarship has developed to undertake empirical studies examining the extent to which these motivations explain corporate mergers and acquisitions. As stated at the outset, views on the overall desirability of mergers and acquisitions often underlie normative arguments about how the law should treat such transactions. On the other hand, the fact that the overwhelming bulk of persons entering a bank do so in order to carry out legitimate transactions and that bank robberies are relatively rare, does not mean that there should not be a law against bank robbery. Hence, this book will examine the laws impacting mergers and acquisitions without attempting to fit our normative assessment of such laws into any overarching position about desirability of all mergers and acquisitions.
- If the transaction is structured as a merger, articles of merger or a certificate of merger must be filed with the Secretary of State. Upon the filing of the articles of merger or certificate of merger, the merger will become effective (in other words, the companies will then be merged by operation of law). The date on which the merger becomes effective is generally referred to as the Effective Date in an Agreement and Plan of Merger. Most provisions of a definitive acquisition agreement do not survive the closing and/or the Effective Date. In addition to the definitive acquisition agreement, the parties will often negotiate and execute other ancillary agreements that aim at helping to transition ownership.
- Typically, the first article of a definitive acquisition agreement will describe the mechanics of the transaction and when the closing will take place. This article is particularly detailed in the context of mergers and of asset sales. In the context of a merger, the agreement will generally include provisions covering the merger, the closing, the Effective Time, the effects of the merger, the governing certificate or articles of incorporation of the surviving corporation, as well as the identity of the officers and directors of the surviving corporation. The merger provision will specify whether the merger will be between the buyer and the target or between a subsidiary of the buyer and the target (a triangular merger), as well as which company will merge into the other company and disappear and which company will survive the merger at the Effective Time.
- concern. When it comes to the sale of a business manufacturing tires, however, it becomes much more difficult for the lawyer to respond to discussions of price by saying: “if I was good with numbers, I would have been an engineer.” This is because whether the price is right is often the central issue in litigation arising out of mergers and acquisitions—whether this litigation consists of shareholders dissenting from a merger and exercising their statutory right to receive the fair value for their stock as determined in a judicially supervised appraisal, or shareholders suing directors or the majority shareholder for breach of fiduciary duty in deciding upon a sale or merger for too low a price. The central role of price in litigation involving mergers and acquisitions not only makes understanding pricing important to the litigator, but also to the transactional attorney advising clients who seek to avoid or prevail in such litigation.
- Parties who think they can better manage the corporation commonly seek to buy a majority or all of the stock in order to displace the current board and gain most or all of the benefit of their efforts. This means that a motivation for some acquisitions of corporations is to force a change in management for better or for ill. Because of the inherent contentiousness of corporate acquisitions motivated by this goal, and the potentially critical role in disciplining corporate management played by such acquisitions, this motive has had a major impact on the law and on the policy discourse involving mergers and acquisitions and, accordingly, will be addressed in considerable detail later in this book.
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Chapter 3. DEAL STRUCTURE AND ITS IMPACTS 77 488 results (showing 5 best matches)
- Beyond addressing false or misleading statements or insider trading, at one point in the 1970s it appeared that Rule 10b–5 could have a far more dramatic impact upon mergers and acquisitions. This would have been to federalize much of the law of fiduciary duty when it comes to such transactions. As discussed above, mergers and acquisitions (except for sales of assets for cash not followed by a dissolution of the target) constitute a purchase or sale of securities (at the very least the stock of the target). If one equates a breach of the duty of loyalty through unfair dealing with “fraud”, then such breaches of fiduciary duty in connection with almost all mergers or acquisitions violate Rule 10b–5. This opens the prospect for shareholders dissatisfied with state law protections in mergers and acquisitions to bring actions in federal courts and invite the federal courts to make up a federal law of the duty of loyalty for mergers and acquisitions.
- Rule 145 more specifically addresses the resale issue in the context of securities received in mergers and asset sales. As originally drafted, it suggested that the underwriter problem not only might exist with a resale by a party in a control relationship with the issuer after the merger or acquisition, but also could exist when the resale is by a party who had, before the transaction, a control relationship with the target even when this party did not have such a relationship with the acquiring or surviving company after the merger or acquisition. In 2008, the SEC amended Rule 145 to eliminate this concern with resale of stock received in a merger or acquisition by former control persons of the target.
- This question of whether shareholders should have “a” say, or “the” say, or even “no” direct say, over corporate mergers, sales, as well as acquisitions, provides a useful frame to close this policy discussion. If shareholders have the unilateral power to accept offers for the corporation carried out through a purchase of stock, then the combined impact of the basic approval mechanics for mergers and acquisitions is to give shareholders the ultimate say over selling the corporation—either by working with directors effectively as their agent to negotiate a merger or sale subject to their veto, or by accepting on their own a buyer’s offer for their stock. Implicit in this arrangement is the assumption that shareholders are usually the better decision maker for mergers and sales than directors, perhaps because of better incentives not offset by lack of expertise or rational apathy. The ability of boards to engage in acquisitions structured as purchases of assets or of stock without...
- Corporate mergers and acquisitions have also provided the context for some of the leading cases dealing with insider trading. In part, this is because mergers and acquisitions are highly significant events, the advance knowledge of which can provide the opportunity for lucrative trading. More fundamentally, the multi-party nature of corporate acquisitions forced the United States Supreme Court to address the question of who is subject to the prohibition on insider trading under Rule 10b–5.
- In any event, neither the Model Act’s timing rule, nor Delaware’s statutory command to exclude the increased value arising from the merger, require, by their language, ignoring the impact of actions by a purchaser in a two-step acquisition (purchase of a controlling block of stock followed by a freeze-out merger), which occur between the acquisition of the controlling block and the follow-on merger. Hence, if a purchaser acquires a majority of a corporation’s stock and takes actions increasing the value of the corporation, shareholders seeking appraisal after a subsequent freeze-out merger should be entitled to their share of the increased value prior to the merger. ...the value of the corporation prior to the subsequent freeze-out merger. To the extent, however, this decreased value reflects the lower value of minority interests in controlled corporations—the purchaser having already paid a premium to acquire the shares giving the purchaser control—then one must address the...
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Chapter 5. CONTROLLING SHAREHOLDER TRANSACTIONS 331 199 results (showing 5 best matches)
- In the previous two chapters, we mentioned at several points the potential impacts in mergers and acquisitions of dealing with different classes of stock. These impacts involve both different economic and voting rights and can lead to claims asserting breach of fiduciary duty.
- Issues involving controlling shareholders occasionally arise in mergers and acquisition-related contexts beyond sales of control and freeze-outs. These include situations in which the controlling shareholder dictates the decision of whether to engage in a particular sale to a third party; clashes resulting from the transaction’s impact on different classes of stock; situations in which the controlling shareholder pushes for the company to engage in an acquisition; and the influence that controlling shareholders may have on ostensibly independent directors. Each of these situations will be addressed briefly below.
- As mentioned earlier, a freeze-out merger may be preceded by a former outsider’s acquisition of shares, which in the context of a public company may be through a tender offer. A longstanding majority shareholder also might use tender offers as a way of buying out minority shareholders. A short-form merger to freeze out any remaining shareholders typically, but not always, follows such an insider tender offer.
- Class Warfare: Disputes Between Different Classes of Stock in Mergers and Acquisitions
- Different voting rights for different classes of stock also can trigger fiduciary duty issues in mergers and acquisitions. As discussed in Chapter III and just mentioned, some deal structures (depending upon the state’s law) trigger requirements that each class of stock separately approve the deal. While the potential for self defense this creates can lessen the need for fiduciary duty claims, the holdout potential this creates for a class to extort added benefits in exchange for approving the deal might trigger such claims. A dual-class share system is a way for founders, initial investors, and others to remain in control of a company, especially when it goes public. However, these dual-class share systems bring with them a unique set of corporate governance issues, which can be exacerbated in mergers and acquisitions. Specifically, they create the prospect for controlling shareholders to lack an economic stake in the target and hence in a merger or sale of the target that is...
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Index 389 74 results (showing 5 best matches)
- Judicial departure from in disinterested mergers and acquisitions, 4.1.1.b
- Upside down mergers and acquisitions, 3.1.1
- MOTIVES FOR MERGERS AND ACQUISITIONS
- Issuing stock in merger or acquisition as a sale of securities, 3.4.1
- Acquisition agreement, price and form of consideration terms, adjustments, 1.3.8.a, 1.3.10.c
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Table of Contents 40 results (showing 5 best matches)
- 3.4.3Securities Fraud and Insider Trading in Mergers and Acquisitions156
- DIRECTORS’ DUTIES AND LIABILITIES TO SHAREHOLDERS IN MERGERS AND ACQUISITIONS203
- 3.4.4Regulation of Tender Offers and Stock Acquisitions Under the Williams Act164
- § 1.1Motives for Mergers and Acquisitions1
- ILLEGAL MERGERS AND ACQUISITIONS59
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Summary of Contents 3 results
Table of Cases 383 14 results (showing 5 best matches)
Dedication 2 results
Copyright Page 3 results
- The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.
- is a trademark registered in the U.S. Patent and Trademark Office.
- West, West Academic Publishing, and West Academic are trademarks of West Publishing Corporation, used under license.
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- Publication Date: November 9th, 2018
- ISBN: 9781683285328
- Subject: Mergers and Acquisitions
- Series: Hornbooks
- Type: Hornbook Treatises
- Description: Gevurtz & Sautter’s Hornbook on Mergers and Acquisitions provides a comprehensive exploration of this important topic. Written in a casual style designed to engage the reader, the book clarifies and critiques critical doctrine. In addition to covering corporate laws governing mergers and acquisitions, the book explores securities, tax, and antitrust laws, as well as addressing the business, financial, and practical lawyering aspects of mergers and acquisitions.
