Table of Contents
INTRODUCTION TO BUSINESS ACQUISITIONS..................................5
M&A LAW............................................................................................5
1. Securities Act of 1933.................................................................................................. 5
2. Securities Exchange Act of 1944..................................................................................5
3. Federal Antitrust Laws................................................................................................. 6
4. State Laws................................................................................................................... 6
5. Industry Regulation...................................................................................................... 6
M&A PLAYERS.....................................................................................6
Parties.............................................................................................................................. 6
Buyers............................................................................................................................. 6
Internal Players................................................................................................................ 7
THE DECISION TO DO THE DEAL..........................................................10
Motive to buy................................................................................................................. 10
Reasons to sell............................................................................................................... 10
Obtaining the highest price reasonably available..........................................................10
M&A TRANSACTION STRUCTURES AND CORPORATE FORMALITIES. .12
STATUTORY MERGERS........................................................................12
Long form...................................................................................................................... 12
Reverse triangular merger.....................................................................................12
Forward triangular merger.....................................................................................13
Short form...................................................................................................................... 13
Parent-and-subsidiary merger................................................................................13
Tender-offer merger...............................................................................................13
CORPORATE FORMALITIES - STATUTORY MERGER................................14
DGCL 251....................................................................................................................... 14
§ 251(a).................................................................................................................. 15
§ 251(b) - Board...................................................................................................... 15
Approval of Merger/Consolidation Agreement........................................................15
§ 251(c) - Stockholder Approval and Filing Procedures...........................................16
§ 251(d) - Termination and Amendment of the Agreement....................................16
§ 251(e) –............................................................................................................... 16
Certificate of Incorporation Adjustments in a.........................................................16
Merger.................................................................................................................... 16
§ 251(f) - Exception to Stockholder Approval Requirement....................................17
§ 251(g) - Merger into a Wholly Owned Subsidiary (Holding Company Exception). 17
§ 251(h) - Exception for Mergers Following a Tender Offer.....................................18
NYSE RULE 312.............................................................................................................. 18
Situations Requiring Shareholder Approval............................................................19
When Shareholder Approval is Not Required..........................................................19
Minimum Vote Required for Shareholder Approval.................................................19
§ 262 – APPRAISAL RIGHTS............................................................................................ 19
§ 262(b) – Appraisal Rights.....................................................................................21
§ 262(c) - Certificate of Incorporation Provisions....................................................21
§ 262(d) - How to Exercise Appraisal Rights...........................................................22
§ 262(e) - Appraisal Proceeding in the Delaware Court of Chancery.......................23
§ 262(h) - Fair Value Determination & Interest Payments.......................................23
§ 262(i) - Payment & Enforcement..........................................................................23
§ 262(j) - Costs & Legal Fees..................................................................................23
1
, § 262(k) - Stockholder Rights Post-Demand...........................................................24
§ 262(l) - Impact on Unissued Shares.....................................................................24
Value of the deal price to determine fair value......................................................25
Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd.......................................25
CORPORATE FORMALITIES – TRIANGULAR MERGERS.....................................................28
Legal Framework........................................................................................................... 28
Advantages.................................................................................................................... 28
Valuing Stock-for-Stock Transactions & Exchange Ratios..............................................28
Exchange Ratio Structures in Stock-for-Stock Deals......................................................28
ACQUISITIONS...................................................................................28
EQUITY SALE.................................................................................................................. 29
Sale structure......................................................................................................... 29
Board and Shareholder Approval............................................................................29
CORPORATE FORMALITIES – EQUITY SALE.....................................................................30
Stock Exchange Offer vs. All-Cash Offer.................................................................30
Agency Cost Problem in M&A Transactions............................................................30
Legal Response to Agency Costs in M&A................................................................30
Structure................................................................................................................ 31
Shareholder approval.............................................................................................31
De facto merger doctrine.......................................................................................31
CORPORATE FORMALITIES - ASSET ACQUISITION...........................................................32
DGCL §271 – ASSET ACQUISITION..................................................................................32
§ 271(a) - General Authorization for Sale, Lease, or Exchange of Assets................32
§ 271(b) - Board’s Right to Abandon the Transaction.............................................34
§ 271(c) - Application to Subsidiaries......................................................................34
Assets..................................................................................................................... 34
Hollinger, Inc. v. Hollinger International, Inc..............................................................34
TENDER OFFERS................................................................................35
Wellman Test......................................................................................................... 36
Process................................................................................................................... 36
Squeeze-out Merger............................................................................................... 36
Top-up option......................................................................................................... 36
Intermediate-form merger......................................................................................37
Rules and Regulations - Williams Act.............................................................................37
Disclosure requirements......................................................................................... 38
Substantive and Procedural Rules..........................................................................39
PROXY CONTESTS..............................................................................39
Proxy...................................................................................................................... 41
Granting a proxy.................................................................................................... 41
Proxy solicitation.................................................................................................... 41
Proxy defense......................................................................................................... 41
Regulation.............................................................................................................. 41
Disadvantages........................................................................................................ 41
Wall Street M&A vs. Main Street M&A............................................................................41
Wall Street vs. Main Street M&A.............................................................................41
Types of Sales in M&A............................................................................................43
Leveraged Buyout (LBO)........................................................................................43
Payment Methods in M&A.......................................................................................43
Market Capitalization and Float..............................................................................43
Takeover Bidding Process......................................................................................44
Why Stock Prices Might Rise Above the Initial Bid..................................................44
M&A DEAL PROCESS...................................................................44
2
, VALUATION.......................................................................................44
1. Deal cash-flow analysis..............................................................................................45
2. Comparable-company analysis..................................................................................45
3. Precedent-transaction analysis..................................................................................46
Purposes........................................................................................................................ 47
FIRST-STEP AGREEMENTS...................................................................47
Nondisclosure Agreement.............................................................................................. 47
Martin Marietta Materials, Inc. v. Vulcan Materials.....................................................48
Standstill agreement...................................................................................................... 49
DUE DILIGENCE..................................................................................50
Due-Diligence Process................................................................................................... 50
SHAREHOLDER VOTE..........................................................................53
Shareholder approval..................................................................................................... 53
Transaction structure..................................................................................................... 53
Number of votes............................................................................................................ 53
Proxies........................................................................................................................... 53
Appraisal remedy........................................................................................................... 54
FIDUCIARY DUTY LAW.................................................................55
Presumption................................................................................................................... 56
Rebuttals of the presumption........................................................................................56
Smith v. Van Gorkom................................................................................................. 56
Gross negligence standard............................................................................................56
Burden of Proof.............................................................................................................. 56
Is a shareholder vote enough to cure the breach?.........................................................56
Unocal........................................................................................................................ 57
Unocal Corp. v. Mesa Petroleum Co........................................................................57
Poison Pill....................................................................................................................... 57
Moran v. Household International, Inc........................................................................58
THE BOARD’S DECISION TO SELL THE COMPANY..................................59
Standard of review......................................................................................................... 59
Revlon........................................................................................................................ 59
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc................................................59
No-shop or lock up provisions........................................................................................59
Defensive Measures and Fiduciary Duties in Hostile Takeovers.....................................61
Paramount Communications, Inc. v. Time, Inc...........................................................61
Change of control.......................................................................................................... 61
Paramount Communications Inc. v. QVC Network Inc................................................61
SAFE HARBORS FOR CONTROLLERS....................................................62
MFW test.................................................................................................................... 62
DEAL PROTECTION PROVISIONS..........................................................64
Termination fees............................................................................................................ 64
Reverse Termination Fees (RTFs)..................................................................................65
Lock-up Options............................................................................................................. 65
Fiduciary Out Clauses.................................................................................................... 66
Judicial Review of Termination Fees in Brazen...............................................................67
Review Standard.................................................................................................... 67
Potential Issues for Review.....................................................................................67
Preclusive Deal-Protection Devices........................................................................67
Omnicare, Inc. v. NCS Healthcare, Inc........................................................................67
Standstill Agreements Cannot Silence Competing Bidders.....................................67
In re The Topps Company Shareholders Litigation.....................................................68
3
, FEDERAL SECURITIES LAW...........................................................69
Federal Securities Laws.................................................................................................69
Antifraud provisions....................................................................................................... 69
Securities Act of 1933.................................................................................................... 69
Disclosure Requirements...............................................................................................70
Federal Proxy Rules....................................................................................................... 72
SECTION 13(D) AND RELATED REPORTING RULES.................................75
Wellman Factors............................................................................................................ 78
REGULATION OF THIRD-PARTY TENDER OFFERS UNDER §14(D) OF THE
WILLIAMS ACT...................................................................................80
What is a tender offer?.................................................................................................. 80
SEC v. Carter Hawley Hale Stores, Inc........................................................................80
Purpose of the Williams Act........................................................................................... 80
Disclosure requirements for Tender Offers....................................................................80
Legal framework for Tender Offers................................................................................81
Schedule TO................................................................................................................... 81
Rule 14d-10................................................................................................................... 82
4
INTRODUCTION TO BUSINESS ACQUISITIONS..................................5
M&A LAW............................................................................................5
1. Securities Act of 1933.................................................................................................. 5
2. Securities Exchange Act of 1944..................................................................................5
3. Federal Antitrust Laws................................................................................................. 6
4. State Laws................................................................................................................... 6
5. Industry Regulation...................................................................................................... 6
M&A PLAYERS.....................................................................................6
Parties.............................................................................................................................. 6
Buyers............................................................................................................................. 6
Internal Players................................................................................................................ 7
THE DECISION TO DO THE DEAL..........................................................10
Motive to buy................................................................................................................. 10
Reasons to sell............................................................................................................... 10
Obtaining the highest price reasonably available..........................................................10
M&A TRANSACTION STRUCTURES AND CORPORATE FORMALITIES. .12
STATUTORY MERGERS........................................................................12
Long form...................................................................................................................... 12
Reverse triangular merger.....................................................................................12
Forward triangular merger.....................................................................................13
Short form...................................................................................................................... 13
Parent-and-subsidiary merger................................................................................13
Tender-offer merger...............................................................................................13
CORPORATE FORMALITIES - STATUTORY MERGER................................14
DGCL 251....................................................................................................................... 14
§ 251(a).................................................................................................................. 15
§ 251(b) - Board...................................................................................................... 15
Approval of Merger/Consolidation Agreement........................................................15
§ 251(c) - Stockholder Approval and Filing Procedures...........................................16
§ 251(d) - Termination and Amendment of the Agreement....................................16
§ 251(e) –............................................................................................................... 16
Certificate of Incorporation Adjustments in a.........................................................16
Merger.................................................................................................................... 16
§ 251(f) - Exception to Stockholder Approval Requirement....................................17
§ 251(g) - Merger into a Wholly Owned Subsidiary (Holding Company Exception). 17
§ 251(h) - Exception for Mergers Following a Tender Offer.....................................18
NYSE RULE 312.............................................................................................................. 18
Situations Requiring Shareholder Approval............................................................19
When Shareholder Approval is Not Required..........................................................19
Minimum Vote Required for Shareholder Approval.................................................19
§ 262 – APPRAISAL RIGHTS............................................................................................ 19
§ 262(b) – Appraisal Rights.....................................................................................21
§ 262(c) - Certificate of Incorporation Provisions....................................................21
§ 262(d) - How to Exercise Appraisal Rights...........................................................22
§ 262(e) - Appraisal Proceeding in the Delaware Court of Chancery.......................23
§ 262(h) - Fair Value Determination & Interest Payments.......................................23
§ 262(i) - Payment & Enforcement..........................................................................23
§ 262(j) - Costs & Legal Fees..................................................................................23
1
, § 262(k) - Stockholder Rights Post-Demand...........................................................24
§ 262(l) - Impact on Unissued Shares.....................................................................24
Value of the deal price to determine fair value......................................................25
Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd.......................................25
CORPORATE FORMALITIES – TRIANGULAR MERGERS.....................................................28
Legal Framework........................................................................................................... 28
Advantages.................................................................................................................... 28
Valuing Stock-for-Stock Transactions & Exchange Ratios..............................................28
Exchange Ratio Structures in Stock-for-Stock Deals......................................................28
ACQUISITIONS...................................................................................28
EQUITY SALE.................................................................................................................. 29
Sale structure......................................................................................................... 29
Board and Shareholder Approval............................................................................29
CORPORATE FORMALITIES – EQUITY SALE.....................................................................30
Stock Exchange Offer vs. All-Cash Offer.................................................................30
Agency Cost Problem in M&A Transactions............................................................30
Legal Response to Agency Costs in M&A................................................................30
Structure................................................................................................................ 31
Shareholder approval.............................................................................................31
De facto merger doctrine.......................................................................................31
CORPORATE FORMALITIES - ASSET ACQUISITION...........................................................32
DGCL §271 – ASSET ACQUISITION..................................................................................32
§ 271(a) - General Authorization for Sale, Lease, or Exchange of Assets................32
§ 271(b) - Board’s Right to Abandon the Transaction.............................................34
§ 271(c) - Application to Subsidiaries......................................................................34
Assets..................................................................................................................... 34
Hollinger, Inc. v. Hollinger International, Inc..............................................................34
TENDER OFFERS................................................................................35
Wellman Test......................................................................................................... 36
Process................................................................................................................... 36
Squeeze-out Merger............................................................................................... 36
Top-up option......................................................................................................... 36
Intermediate-form merger......................................................................................37
Rules and Regulations - Williams Act.............................................................................37
Disclosure requirements......................................................................................... 38
Substantive and Procedural Rules..........................................................................39
PROXY CONTESTS..............................................................................39
Proxy...................................................................................................................... 41
Granting a proxy.................................................................................................... 41
Proxy solicitation.................................................................................................... 41
Proxy defense......................................................................................................... 41
Regulation.............................................................................................................. 41
Disadvantages........................................................................................................ 41
Wall Street M&A vs. Main Street M&A............................................................................41
Wall Street vs. Main Street M&A.............................................................................41
Types of Sales in M&A............................................................................................43
Leveraged Buyout (LBO)........................................................................................43
Payment Methods in M&A.......................................................................................43
Market Capitalization and Float..............................................................................43
Takeover Bidding Process......................................................................................44
Why Stock Prices Might Rise Above the Initial Bid..................................................44
M&A DEAL PROCESS...................................................................44
2
, VALUATION.......................................................................................44
1. Deal cash-flow analysis..............................................................................................45
2. Comparable-company analysis..................................................................................45
3. Precedent-transaction analysis..................................................................................46
Purposes........................................................................................................................ 47
FIRST-STEP AGREEMENTS...................................................................47
Nondisclosure Agreement.............................................................................................. 47
Martin Marietta Materials, Inc. v. Vulcan Materials.....................................................48
Standstill agreement...................................................................................................... 49
DUE DILIGENCE..................................................................................50
Due-Diligence Process................................................................................................... 50
SHAREHOLDER VOTE..........................................................................53
Shareholder approval..................................................................................................... 53
Transaction structure..................................................................................................... 53
Number of votes............................................................................................................ 53
Proxies........................................................................................................................... 53
Appraisal remedy........................................................................................................... 54
FIDUCIARY DUTY LAW.................................................................55
Presumption................................................................................................................... 56
Rebuttals of the presumption........................................................................................56
Smith v. Van Gorkom................................................................................................. 56
Gross negligence standard............................................................................................56
Burden of Proof.............................................................................................................. 56
Is a shareholder vote enough to cure the breach?.........................................................56
Unocal........................................................................................................................ 57
Unocal Corp. v. Mesa Petroleum Co........................................................................57
Poison Pill....................................................................................................................... 57
Moran v. Household International, Inc........................................................................58
THE BOARD’S DECISION TO SELL THE COMPANY..................................59
Standard of review......................................................................................................... 59
Revlon........................................................................................................................ 59
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc................................................59
No-shop or lock up provisions........................................................................................59
Defensive Measures and Fiduciary Duties in Hostile Takeovers.....................................61
Paramount Communications, Inc. v. Time, Inc...........................................................61
Change of control.......................................................................................................... 61
Paramount Communications Inc. v. QVC Network Inc................................................61
SAFE HARBORS FOR CONTROLLERS....................................................62
MFW test.................................................................................................................... 62
DEAL PROTECTION PROVISIONS..........................................................64
Termination fees............................................................................................................ 64
Reverse Termination Fees (RTFs)..................................................................................65
Lock-up Options............................................................................................................. 65
Fiduciary Out Clauses.................................................................................................... 66
Judicial Review of Termination Fees in Brazen...............................................................67
Review Standard.................................................................................................... 67
Potential Issues for Review.....................................................................................67
Preclusive Deal-Protection Devices........................................................................67
Omnicare, Inc. v. NCS Healthcare, Inc........................................................................67
Standstill Agreements Cannot Silence Competing Bidders.....................................67
In re The Topps Company Shareholders Litigation.....................................................68
3
, FEDERAL SECURITIES LAW...........................................................69
Federal Securities Laws.................................................................................................69
Antifraud provisions....................................................................................................... 69
Securities Act of 1933.................................................................................................... 69
Disclosure Requirements...............................................................................................70
Federal Proxy Rules....................................................................................................... 72
SECTION 13(D) AND RELATED REPORTING RULES.................................75
Wellman Factors............................................................................................................ 78
REGULATION OF THIRD-PARTY TENDER OFFERS UNDER §14(D) OF THE
WILLIAMS ACT...................................................................................80
What is a tender offer?.................................................................................................. 80
SEC v. Carter Hawley Hale Stores, Inc........................................................................80
Purpose of the Williams Act........................................................................................... 80
Disclosure requirements for Tender Offers....................................................................80
Legal framework for Tender Offers................................................................................81
Schedule TO................................................................................................................... 81
Rule 14d-10................................................................................................................... 82
4
