Corporate Acquisitions and Multinational Corporations

Chapter Ten

Corporate Acquisitions and Multinational Corporations

Business Organizations for ParalegalsReed and Cheeseman

© 2012 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.2 29 - 237 - 2

Chapter Ten – Objectives

1. Describe the process of soliciting proxies from shareholders and engaging in proxy contests.

2. Define shareholder resolution and identify when a shareholder can include a resolution in proxy materials.

3. Describe the process for approving a merger or share exchange.

4. Describe tender offer and describe poison pills, greenmail, and other defensive maneuvers to prevent hostile takeover.

5. Examine the use of multinational corporations in conducting international business.



Proxy Solicitation

Corporate shareholders have the right to vote on the election of directors, mergers, and charter amendments.

They can exercise their power to vote either in person or by proxy.

Proxy Card – A written document signed by a shareholder that authorizes another person to vote the shareholder’s shares.



Federal Proxy Rules

Section 14(a) – of the Securities Exchange Act of 1934 gives the SEC the authority to regulate the solicitation of proxies.

Proxy Statement – A document that fully describes: The matter for which the proxy is being solicited Who is soliciting the proxy Any other pertinent information



Antifraud Provision

Section 14(a) of the Securities Exchange Act of 1934 prohibits misrepresentations or omissions of a material fact in proxy materials.

The SEC, U.S. Justice Department, or share-holders who are injured by the misrepresentation or omission may sue the wrongdoer.

The courts have implied a private cause of action under this provision.



Proxy Contests

Opposing factions of shareholders and manager solicit proxies from other shareholders.

The side that receives the greatest number of votes wins the proxy contest.

Management must supply list of shareholders to dissenting side or mail proxy solicitation materials for them.



Reimbursement of Expenses

If contest involves issue of proxy: Corporation must reimburse incumbent

management. Reimburses dissenting group only if they win.

If contest involves personal issue: Neither side reimbursed.



Shareholder Resolution

A resolution that may be submitted by a shareholder who meets certain ownership requirements to other shareholders for a vote.

Many resolutions concern social matters. May be included with proxy materials.



Mergers and Acquisitions

Corporations may agree to friendly acquisitions or combinations of one another. Merger Consolidation Share Exchange Sale of Assets



Mergers

Occurs when one corporation is absorbed into another corporation and ceases to exist.

The surviving corporation gains all the rights, privileges, powers, duties, obligations, and liabilities of the merged corporation.

Shareholders of the merged corporation receive stock or securities of the surviving corporation. Provided in the plan of merger.



Merger

++ ==Corporation Corporation AA

Corporation Corporation BB

Corporation Corporation AA



Consolidation

Occurs when two or more corporations combine to form an entirely new corporation.

The new corporation is called the consolidated corporation.

The articles of incorporation of the new corporation replace the articles of incorporation of the component corporations.



Example of a Consolidation



Corporation Corporation CC



Share Exchange

When one corporation acquires all the shares of another corporation.

Both corporations retain their separate legal existence. Parent corporation owns all or most of the shares of

the subsidiary corporation.



Example of a Share Exchange



Corporation Corporation A A

(parent (parent corporation)corporation)

Corporation Corporation B B

(subsidiary (subsidiary corporation)corporation)

A owns BA owns B



Required Approvals

An ordinary merger or share exchange requires: The recommendation of the board of directors of

each corporation, and An affirmative vote of the majority of shares of

each corporation that is entitled to vote Approved articles of merger or share exchange filed

with secretary of state. Secretary of state issues certificate of merger or

share exchange.



Short-form Merger

Merger between a parent corporation and a subsidiary corporation.

Does not require the vote of the shareholders of either corporation or the board of directors of the subsidiary corporation.

Can occur when the parent corporation owns 90 percent (or more) of the outstanding stock of the subsidiary corporation.



Sale or Lease of Assets

A corporation may sell, lease, or otherwise dispose of all or substantially all of its property.

This requires: Recommendation of the board of directors, and Affirmative vote of the majority of the shares of the

selling corporation that is entitled to vote.



Dissenting Shareholder Appraisal Rights

Shareholders who object to a proposed merger, share exchange, or sale or lease of all or substantially all of the property of a corporation may:

Have their shares valued by the court. Receive cash payment of this value from the

corporation. Paid when action is taken.



Tender Offer

An offer that an acquirer makes directly to a target corporation’s shareholders in an effort to acquire the target corporation.

The offeror’s board of directors must approve the offer. Shareholders do not have to approve.

The tendering corporation and the target corporation retain their separate legal status.



Illustration of a Tender Offer

Tender Tender OfferorOfferor

Target Target CorporationCorporation

ShareholdersShareholders

Tender offer is made to the Tender offer is made to the shareholders of the target shareholders of the target corporation. The tender corporation. The tender offeror offers to purchase offeror offers to purchase their shares in the target their shares in the target corporation.corporation.



Landmark Law: The Williams Act (1968)

An amendment to the Securities Exchange Act of 1934.

Specifically regulates all tender offers. Establishes certain disclosure requirements and

antifraud provisions.



Tender Offer Rules

Fair Price Rule A rule that says any increase in price paid for shares

tendered must be offered to all shareholders. Even those who have previously tendered their

shares.

Pro Rata Rule A rule that says shares must be purchased on a pro

rata basis if too many shares are tendered.



Antifraud Provision

Section 14(e) of the Williams Act prohibits fraudulent, deceptive, and manipulative practices in connection with a tender offer.

Violations of this section may result in civil charges brought by the SEC or criminal charges brought by the Justice Department.

The courts have implied a private civil cause of action under Section 14(e).



Fighting a Tender Offer

Persuasion of Shareholders

Delaying Lawsuits Selling a Crown Jewel Adopting a Poison Pill White Knight Merger Pac-Man (or reverse)

Tender Offer

Persuasion of Shareholders

Delaying Lawsuits Selling a Crown Jewel Adopting a Poison Pill White Knight Merger Pac-Man (or reverse)

Tender Offer

Issuing Additional Stock Creating an Employee

Stock Ownership Plan (ESOP)

Flip-over and Flip-in Rights Plans

Greenmail and Standstill Agreements

Issuing Additional Stock Creating an Employee

Stock Ownership Plan (ESOP)

Flip-over and Flip-in Rights Plans

Greenmail and Standstill Agreements



Business Judgment Rule

A rule that protects the decisions of the board of

directors, who act on an informed basis, in good faith,

and in the honest belief that the action taken was in the

best interests of the corporation and the shareholders.

Defensive strategies employed will be judged by this

rule.



State Antitakeover Statutes

Statutes enacted by state legislatures that are aimed

at protecting corporations that are either

incorporated in or doing business within the state

from hostile takeovers. State antitakeover statutes are lawful if they:

Do not conflict with the federal Williams Act, or Do not unduly burden interstate commerce in

violation of the Commerce Clause of the U.S. Constitution.



Chapter Ten – Recap

1. Describe the process of soliciting proxies from shareholders and engaging in proxy contests.

2. Define shareholder resolution and identify when a shareholder can include a resolution in proxy materials.

3. Describe the process for approving a merger or share exchange.

4. Describe tender offer and describe poison pills, greenmail, and other defensive maneuvers to prevent hostile takeover.

5. Examine the use of multinational corporations in conducting international business.

Corporate Acquisitions and Multinational Corporations

Business

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