Mergers and Acquisitions, 3d
Author:
Bainbridge, Stephen M.
Edition:
3rd
Copyright Date:
2012
15 chapters
have results for mergers and acquisitions
Chapter 1. Introduction 145 results (showing 5 best matches)
- William J. Carney, Mergers and Acquisitions: Cases and Materials 2–13 (2000); Patrick A. Gaughan, Mergers, Acquisitions, and Corporate Restructurings 23–56 (3d ed. 2002); Ronald J. Gilson and Bernard S. Black, The Law and Finance of Corporate Acquisitions 11–61 (2d ed. 1995).
- : An acquisition technique in which the bidder makes a partial tender offer and simultaneously announces an intention to subsequently acquire the remaining shares of the company in a subsequent merger. Often, the price paid in the second step merger is lower and not paid in cash.
- Merger and acquisition activity tends to be cyclical, usually coinciding with boom periods for the stock market. Economic historians have identified four major “merger waves” in U.S. history: 1897–1904, 1916–1929, 1965–1969, and 1984–1989. began in the mid–1990s. That wave was characterized by the prevalence of negotiated over hostile acquisitions, the enormous dollar values involved, and a record-breaking pace both in terms of the number of deals and their aggregate dollar value.
- De facto merger
- The rate of M & A activity bottomed out in 2002 but then picked up significantly before peaking in 2007. The economic crisis and recession of 2008 again triggered a drop in the number of acquisition deals. By 2010, however, despite the slow pace of economic recovery, the volume of M & A activity had begun to recover. There were 9,116 acquisitions announced in 2010, a 34% increase over 2009. The total value of those deals was $690 billion, an increase of 24% over 2009. As a result, mergers and acquisitions remain a key part of the practice of corporate finance law.
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Preface 8 results (showing 5 best matches)
- Perhaps more than any other corporate transaction, mergers and acquisitions implicate a vast array of legal regimes. In any given transaction, issues may arise in such varied areas as corporate governance, securities regulation, tax and accounting, ERISA and other employment laws, successor liability and other tort doctrines, creditor rights, and, of course, antitrust. In deciding what subjects to cover in this text, I have kept in mind my primary target audience—namely, law students taking an advanced business law course such as Mergers & Acquisitions or Corporate Finance. (Of course, I hope the analysis will also prove useful to lawyers and judges seeking a fresh perspective on mergers and acquisitions.) Because most teachers of such courses focus on corporate and securities law issues, as do the several very fine casebooks in this area, I have focused on those subjects herein.
- Rule: A rule adopted by the Securities and Exchange Commission under either the Securities Act or the Securities Exchange Act, 17 C.F.R. § 230.100 (1999) and 17 C.F.R. § 240.0–1
- In general, citations follow standard Blue Book form, but I have kept footnotes to the bare minimum. In particular, I refrained from using “id.,” short form citations, and jump cites. Hence, unlike most modern law review articles, not every statement in the book is footnoted. Instead, I typically provide a source citation and allow interested readers to seek out pinpoint citations on their own. I strongly believe that this approach produced a more readable text. Finally, note that frequently referenced statutes and Restatements are cited in abbreviated form without dates, as follows:
- I hasten to reassure the potentially worried reader that this text is designed for lawyers and law students—not graduate finance or economics students. Economic analysis is done solely qualitatively—no mathematical models or formal game theory—and kept as intuitive as possible. Even more important, economic analysis is never done for its own sake. In his well-known critique of modern legal scholarship, Judge Harry Edwards remarked: “Theory wholly divorced from cases has been of no use to me in practice.” as I hope to illustrate in this text. Economic analysis nevertheless is brought into play gradually and only in instances where it adds significant value.
- : American Law Institute, Principles of Corporate Governance: Analysis and Recommendations (1994).
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Chapter 3. Mergers, Asset Sales, and Other Statutory Acquisitions 266 results (showing 5 best matches)
- Turning to policy concerns, does the de facto merger doctrine make sense? Put another way, why did the Delaware courts and the Pennsylvania legislature reject the de facto merger doctrine? Is it simply that they prefer corporate interests to shareholder interests? No. The statute provides various ways of accomplishing an acquisition. It does so because no one acquisition technique is always appropriate. If we let courts recharacterize the statutory alternatives, we increase uncertainty and we eliminate the wealth-creating advantages of having multiple acquisition formats.
- The M & A Jurisprudence Subcommittee, Negotiated Acquisitions Committee, American Bar Association Section of Business Law, Annual Survey of Judicial Developments Pertaining to Mergers and Acquisitions, Bus. Law. 531, 537–38 (2008) (footnotes omitted).
- , the Delaware Supreme Court emphatically rejected the de facto merger doctrine. Arco agreed to sell all of its assets to Loral Electronics in return for 283,000 Loral shares. Arco then planned to dissolve, distributing the Loral shares to its shareholders as a final liquidating dividend. An Arco shareholder sued, claiming that the nominal asset sale was, in substance, a merger. The court agreed “that this sale has achieved the same result as a merger,” but held that form was to be elevated over substance. The de facto merger doctrine offended the equal dignity of the merger and asset sale provisions of the corporation code. Put another way, the legislature has provided multiple vehicles by which to achieve the same substantive outcome. Each statutory acquisition method had “independent legal significance,” and the court could not gainsay the legislative decisions to provide different acquisition forms carrying different levels of shareholder protection.
- Suppose there is a significant lapse of time between the initial acquisition and the subsequent freeze-out merger, during which the acquirer makes changes in the corporation’s business plans that add new value. Suppose plaintiff sought to admit evidence relating to synergistic effects the merger would have, making the combined entity more valuable than the separate companies, such as might be the case if the merger created a vertically integrated company that achieves great economies of scale. What relevance would such information have to valuation in an appraisal proceeding brought in connection with the eventual freeze-out merger? In one of its many ...in a two-step acquisition value added by the acquiring corporation subsequent to its initial purchase of a controlling block of shares was properly to be considered part of going concern value that dissenting shareholders who sought appraisal were entitled to share. The Chancery Court had refused to consider such elements of...
- Provisions for monetary compensation of the favored bidder in the event the transaction fails to go forward are common in negotiated acquisitions. Cancellation fees, the most widely used member of this category, essentially are liquidated damages payable if the acquirer fails to receive the expected benefits of its agreement. A variation of the cancellation fee arrangement, closely akin to stock lockups, involves giving an option to the acquirer pursuant to which the acquirer has the right to purchase a specified number of target shares and also a right to resell those shares to the target at a price higher than the exercise price in the event that an alternative bid is accepted. As such, the target is required to pay some specified dollar amount to the acquirer in the event that the transaction is not consummated, reimbursing the acquirer for out of pocket costs associated with making the offer and perhaps also including an increment reflecting the acquirer’s lost time and...
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Chapter 4. Freeze-Out Mergers, Sales of Control, and Similar Controlling Shareholder Transactions 112 results (showing 5 best matches)
- The short-form merger is a statutory acquisition technique available only when the acquiring corporation owns some very high percentage—in most states, at least 90%—of the shares of the target corporation. Because the directors of such a thoroughly dominated subsidiary are unlikely to be truly independent of the parent corporation and the outcome of a shareholder vote would be a foregone conclusion, neither the subsidiary’s board of directors nor its shareholders get a vote on the merger. Instead, in most cases, the decision to effect a short-form merger is vested solely in the discretion of the parent corporation’s board of directors.
- The independent directors could vote against the deal, but ARCO and its favored buyer could end run the board by structuring the deal as a tender offer or stock acquisition. The independent board members could contacted the minority shareholders to encourage the minority shareholders to exercise their appraisal rights in the event of a freeze-out merger, as the court suggests, but the ineffectiveness of the appraisal remedy leaves one skeptical of the merits of that option.
- Subsidiary shareholders frozen out via a short-form merger do get appraisal rights under Delaware law. The parent corporation is required to notify the minority shareholders both that the merger will be effected and that appraisal rights are available. Unlike a freeze-out merger effected via the standard merger statute, however, Delaware courts do not apply the entire fairness standard to short-form mergers.
- , shareholders of Magnavox challenged the corporation’s agreement to be acquired by North American Philips in a reverse triangular merger. Because North American indirectly owned 84.1% of Magnavox’s outstanding shares by virtue of a prior tender offer, the outcome of the shareholder vote on the merger proposal was a foregone conclusion. After the merger became effective, plaintiff shareholders sought an order nullifying the merger and awarding compensatory damages on the grounds that the merger was fraudulent and constituted a breach of duty by the defendant directors and by North American as the controlling shareholder.
- In a freeze-out transaction, the controlling shareholder buys out the minority shareholders, even if the minority object. The transaction typically is effected using a triangular merger in which the corporation is merged with a wholly owned subsidiary of the controlling shareholder. A merger combines two corporations to form a single firm. After a merger, only one of the two companies will survive, but that survivor succeeds by operation of law to all of the assets, liabilities, rights, and obligations of the two constituent corporations. In addition, a merger also converts the shares of each constituent corporation into whatever consideration was specified in the merger agreement. Suppose the merger agreement provided that minority shareholders were to receive $50 per share in cash. After the merger takes place, their shares are transformed by operation of law into a mere IOU for the promised cash payment.
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Chapter 7 Target Defenses Against Hostile Takeover Bids 323 results (showing 5 best matches)
- takeover struggle between Time, Warner Communications, and Paramount. After first developing a long-term strategic plan and searching for acquisitions that would advance that plan, Time’s board of directors agreed to a merger with Warner Communications in which former Warner shareholders would receive newly issued Time shares representing approximately 62 percent of the shares of the combined entity. As is typical in negotiated acquisitions, the parties also sought “to discourage any effort to upset the transaction” by agreeing to a lock-up option giving each party the option to trigger an exchange of shares. In addition, the merger agreement included a no shop clause, which they supplemented by obtaining commitments from various banks that they would not finance a takeover bid for Time.
- See generally Stephen M. Bainbridge, Exclusive Merger Agreements and Lock–Ups in Negotiated Corporate Acquisitions, 75 Minn. L. Rev. 239 (1990).
- Both negotiated acquisitions and unsolicited tender offers may trigger competitive bidding for control of the target. Like exclusivity provisions in a merger agreement, the lock-up developed as a response to these risks. A lock-up is any arrangement or transaction by which the target corporation gives the favored bidder a competitive advantage over other bidders. So defined the term includes such tactics as an unusually large cancellation fee or an agreement by the target to use takeover defenses to protect the favored bid from competition. Lock-up options refer more narrowly to agreements (usually separate from the merger agreement) granting the acquirer an option to buy shares or assets of the target. The option commonly becomes exercisable upon the acquisition by some third party of a specified percentage of the target’s outstanding shares.
- This is not to suggest that motive is always dispositive. In Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003). The Delaware Supreme Court invoked Unocal and its progeny to invalidate a lockup arrangement in a negotiated acquisition. In dissent, Justice Steele observed (correctly, in my view) that the target’s “board of directors acted selflessly pursuant to a careful, fair process and determined in good faith that the benefits to the stockholders and corporation flowing from a merger agreement containing reasonable deal protection provisions outweigh any speculative benefits that might result from entertaining a putative higher offer.” If motive were controlling, the court therefore should have upheld the merger agreement.
- On July 9, 2007, Access owner Leonard Blavatnik met with Lyondell CEO Dan Smith to propose a $40 per share acquisition of Lyondell. Smith rejected that offer as too low and Blavatnik countered with an offer of $44–45. Smith agreed to take that offer to the board, but said he suspected the board would reject it as too low. Later that day, Blavatnik raised his offer to $48 per share, conditioned on a demand for a $400 million break up fee and a merger agreement to be signed not later than July 16th.
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Table of Contents 51 results (showing 5 best matches)
Chapter 8 State Anti–Takeover Legislation 69 results (showing 5 best matches)
- state takeover statutes, the Wisconsin law deters tender offers by regulating freeze-out mergers and other post-acquisition transactions. Like most business combination statutes, it imposes a statutory freeze period, here three years, following the acquisition during which business combinations are prohibited. The sole viable exception to the freeze period is prior approval by the incumbent directors: “In Wisconsin it is management’s approval in advance, or wait three years.”
- By requiring certain disclosures from the prospective purchaser and by allowing the target’s shareholders to vote on the acquisition as a group, control share acquisition statutes supposedly provide the shareholders a collective opportunity to reject an inadequate or otherwise undesirable offer. For example, since control share acquisition statutes generally require the offeror to disclose plans for transactions involving the target that would be initiated after the control shares are acquired, shareholders presumably would be unlikely to approve a creeping tender offer or street sweep which would be followed by a squeeze out back-end merger at a price less than or in a consideration different than that paid by the acquirer in purchasing the initial share block.
- There are four principal variants of “second generation” statutes: Control share acquisition statutes rely on the states’ traditional power to define corporate voting rights as a justification for regulating the bidder’s right to vote shares acquired in a control transaction. A “control share acquisition” is typically defined as the acquisition of a sufficient number of target company shares to give the acquirer control over more than a specified percentage of the voting power of the target. The triggering level of share ownership is usually defined as an acquisition which would bring the bidder within one of three ranges of voting power: 20 to 33 1/3%, 33 1/3 to 50% and more than 50%. Most control share acquisition laws provide that shares acquired in a control share acquisition shall not have voting rights unless the shareholders approve a resolution granting voting rights to the acquirer’s shares. ...of the target and directors who are also employees of the target may not...
- DGCL § 203 is a variant on the older business combination statutes. Section 203 prohibits a Delaware corporation from entering into a business combination for a period of three years after an offeror becomes an interested stockholder. Business combination is defined to include freeze-out mergers and other common post-acquisition transactions.
- Second, Pennsylvania adopted a control share acquisition statute largely modeled on the Indiana statute upheld in acquisition must be approved by a majority of the “disinterested” shares and a majority of all shares (other than those of the bidder). If approval is not forthcoming, the bidder’s shares are stripped of their voting rights. Disinterested shares are defined by statute as those that have been held by their owner for (i) twelve months before the record date for voting or (ii) five days prior to the first disclosure of the takeover bid. This provision apparently is intended to address a perceived loophole in second-generation control share acquisition statutes; namely, the fact that takeover speculators often buy up large blocks of stock after a bid is announced.
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Chapter 5. Shareholder Voting in Acquisitions and Acquisitions by Shareholder Vote 155 results (showing 5 best matches)
- As we saw in Chapter 3, transaction planners often structure transactions so as to deny shareholders a vote on a proposed acquisition. Although this is difficult to do with respect to target shareholders, simple deal structures—such as asset purchases, triangular mergers, or tender offers—can eliminate voting rights for the acquiring company’s shareholders. Although state law provides such shareholders with no recourse, excepting only the handful of states in which the de facto merger doctrine has any real teeth, stock exchange listing standards may step in to fill this perceived gap in shareholder rights.
- Because a merger or asset sale requires shareholder approval, the state laws governing shareholder voting obviously are highly relevant to negotiated acquisitions. Likewise, because public corporations generally need to solicit proxies in order to conduct a shareholder vote, the federal proxy rules also come into play in a negotiated deal. Because state law allows a dissident shareholder to contest the election of the board of directors by putting forward an alternative slate of candidates and federal law allows the dissident to solicit proxies in support of that slate, the voting rules also create an alternative vehicle for acquiring control of a corporation; namely, the proxy contest.
- , for example, the merger could be undone and the two firms restored to their prior position as separate entities. This option is chosen very rarely. Courts tend to look at mergers and similar transactions the way a cook looks at an omelet: once the eggs have been scrambled, you can’t put them back in the shells. When a merger takes place, all sorts of commingling takes place. Employees are fired or transferred, assets (such as bank accounts) are mixed up and reallocated, operating procedures are changed, and the like. The courts are very aware of this commingling process and therefore will set aside a merger only where it is possible to do so without harming the overall value of the firms and no other remedy can make the injured parties whole.
- In most states, a shareholder vote is not required if the transaction qualifies as a so-called short-form merger. The short-form merger statute is a special provision for a merger between a parent corporation and one of its subsidiaries. The statute may be invoked only if the parent corporation owns a high percentage—typically 90%—of the subsidiary’s outstanding stock. Early short-form merger statutes typically required the transaction to be approved by the board of directors of each corporation. Neither corporation’s shareholders were allowed to vote. MBCA § 11.05(a) and DGCL § 253(a), however, reflect a modern trend towards even more liberal short-form mergers. Both statutes authorize a short-form merger when the parent owns at least 90% of the subsidiary’s stock. If that threshold is met, only the parent corporation’s board need approve the merger.
- Delaware’s “adversely affect” language is less determinate than the more specific MBCA formulations and, hence, more likely to produce litigation. In for example, AIC was acquired by Leucadia, Inc. in a triangular merger between AIC and a wholly owned Leucadia subsidiary. AIC was the surviving entity. AIC’s common shareholders were cashed out, but AIC’s preferred shareholders were left in place. Certain of AIC preferred’s holders sued. Because the plan of merger would amend AIC’s articles of incorporation, the preferred claimed a right to vote on the plan of merger as a separate group. The pre-merger articles contained two relevant provisions: (1) The board was authorized to redeem—but not to call—the preferred. (2) If the board offered to buy back some (but not all) of the preferred shares, and the offer was over-subscribed, the shares to be redeemed were to be determined by lot. The plan of merger replaced these provisions with a sinking fund coupled with a call provision. Under...
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Chapter 6 Tender Offers and Other Stock Purchases 132 results (showing 5 best matches)
- In evaluating the adequacy of an offer, the mere fact that a target’s shares may trade below the offer price does not mean that the price was sufficient, since the ordinary trading market does not reflect the target’s value in an acquisition. The proper comparison is not between the price of the stock in the market and the offer price, but rather between the offer price and the price that could otherwise be obtained upon a sale of the entire company. As the Delaware supreme court has noted, “[a] substantial premium may provide one reason to recommend a merger, but in the absence of other sound valuation information, the fact of a premium alone does not provide an adequate basis upon which to assess the fairness of an offering price…. [Because] the Board had made no evaluation of the Company designed to value the entire enterprise, nor had the Board ever previously considered selling the Company or consenting to a buy-out merger … the adequacy of a premium is indeterminate unless it...
- As we have seen, the target corporation’s board of directors serves as a gatekeeper in all of the statutory acquisition forms. Target board approval is a condition precedent to putting the transaction to a shareholder vote and, of course, to ultimately closing the transaction to occur. If the board disapproves of a prospective acquisition, an outsider must resort to one of the three nonstatutory acquisitions devices: proxy contests, share purchases, or tender offers.
- The Rule was specifically intended to reach the wave of insider trading activity associated with the increase in merger and acquisition activity during the 1980s. The rule prohibits insiders of the bidder and target from divulging confidential information about a tender offer to persons that are likely to violate the rule by trading on the basis of that information. This provision (Rule 14e–3(d)(1)) does not prohibit the bidder from buying target shares or from telling its legal and financial advisers about its plans. What the rule prohibits is tipping of information to persons who are likely to buy target shares for their own account. In particular, the rule was intended to strike at the practice known as warehousing. Anecdotal evidence suggests that before Rule 14–3 was on the books bidders frequently tipped their intentions to friendly parties. Warehousing increased the odds a hostile takeover bid would succeed by increasing the number of shares likely to support the bidder’s...
- : Item 4 is the heart of any Schedule 13D and, along with deciding who is a member of the group, the source of most § 13(d) litigation. The instructions require disclosure of “any plans or proposals which the reporting persons may have which relate to or would result in” any of 9 specified actions or, in a tenth catch-all provision, any “action similar to any of those enumerated above.” Among the enumerated actions are: (1) acquisition or disposition of the target’s securities; (2) a merger or other extraordinary transaction involving the target or any of its subsidiaries; (3) a sale or transfer of a material amount of the target’s assets; (4) changes in the composition of the target’s board of directors or management; and so on. In addition to the numerous specifics required by the instructions to Item 4, courts have held that the reporting person must explicitly state whether it intends to seek or is considering seeking control of the issuer.
- 1. Securities Exchange Act § 13(d) regulates beachhead acquisitions of target stock. (The term beachhead acquisition refers to purchases of an initial block of target stock, either on the open market or privately, before the bidder announces its intent to conduct a tender offer.)
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Chapter 2. The Business Context of M & A Transactions 85 results (showing 5 best matches)
- Why would someone want to acquire a corporation? Obviously, there are many potential motivations. Yet, understanding the motivation driving a particular acquisition can help the transaction planner answer two critical questions: (1) What opportunities does the transaction offer by which one or both parties might behave opportunistically? In other words, how might one side try to get more than its “fair” share of the pie? Doing something about strategic behavior is a question as to which we as lawyers have a comparative advantage vis-à-vis other participants in mergers and acquisitions. Our expertise runs towards using laws and contracts to constrain behavior. (Alternatively, we may represent the party that wants to behave strategically, in which case our job is to figure out how to help them get more than their fair share.) (2) How does this transaction create value? This is a pie expansion rather than a pie division question. How can the lawyer expand the pie by adding additional...
- After reviewing numerous studies, Professors Gilson and Black conclude “that, on average, corporate acquisitions increase the combined shareholder market value of the acquiring and target companies.” Ronald J. Gilson & Bernard S. Black, The Law and Finance of Corporate Acquisitions 309 (2d ed. 1995).
- See Ronald J. Gilson & Bernard S. Black, The Law and Finance of Corporate Acquisitions 623–27 (2d ed. 1995) (summarizing evidence); see also Amanda Acquisition Corp. v. Universal Foods Corp., 877 F.2d 496, 500 n. 5 (7th Cir.1989) (“no evidence of which we are aware suggests that bidders confiscate workers’ and other participants’ investments to any greater degree than do incumbents—who may (and frequently do) close or move plants to follow the prospect of profit”).
- Strategic acquisition for the sake of diversification
- See generally Michael C. Jensen, The Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers, 76 Am. Econ. Rev. 323 (1986). The free cash flow story seems particularly useful as an explanation for leveraged acquisitions—i.e., those funded by borrowing. A leveraged acquisition results in a one-time disbursement of free cash to the shareholders and, moreover, forces the company to go forward with a highly leveraged capital structure. The additional debt forces the firm’s board and management to continuing paying out free cash flows. Dividends are optional and flexible. Debt payments are mandatory and inflexible. You have to make them. Financial flexibility, in the form of free cash flow, large cash balances, and unused borrowing power provides managers with greater discretion over resources that is often not used in shareholders’ interests. Debt limits management’s discretion in useful ways. In effect, debt becomes a low cost mechanism by which management promises to...
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Index 118 results (showing 5 best matches)
Table of Cases 22 results (showing 5 best matches)
- AC Acquisitions Corp. v. Anderson, Clayton & Co., 519 A.2d 103 (Del.Ch.1986), 252, 260, 272
- Amanda Acquisition Corp. v. Universal Foods Corp., 877 F.2d 496 (7th Cir. 1989), 49, 320, 321, 335, 337
- Amanda Acquisition Corp. v. Universal Foods Corp., 708 F.Supp. 984 (E.D.Wis. 1989), 319, 342
- BBC Acquisition Corp. v. Durr–Fillauer Medical, Inc., 623 A.2d 85 (Del.Ch.1992), 167
- Cede & Co. v. JRC Acquisition Corp., 2004 WL 286963 (Del.Ch.2004), 106
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Copyright Page 1 result
- This publication was created to provide you with accurate and authoritative information concerning the subject matter covered; however, this publication was not necessarily prepared by persons licensed to practice law in a particular jurisdiction. 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.
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- Publication Date: April 10th, 2012
- ISBN: 9781609301323
- Subject: Mergers and Acquisitions
- Series: Concepts and Insights
- Type: Hornbook Treatises
- Description: This text provides a concise statement of the the state corporate and federal securities laws governing mergers and acquisitions law designed for law students taking an advanced business law course such as mergers and acquisitions or corporate finance, lawyers practicing in corporate takeovers, and judges faced with cases arising out of such transactions. This thoroughly updated third edition features a considerably expanded treatment of practical aspects, such as drafting merger agreements, preparing disclosure documents, and dealing with takeover defenses.
