Corporations, Bankruptcies, and Takeovers
Martin K. Perry
Outline of Lectures: Corporate Takeovers
Disclaimer: Any material discussed in this outline that I did NOT discuss in one of the lectures will NOT be covered on the midterm or the final examination. I may have discussed that material in past semesters, but chose not to discuss that material this semester. In addition, these lecture notes do NOT include everything that I discussed in the lectures. Anything that I discussed in the lectures can be covered on the midterm or the final examination.
A. Three types of stock: The number of “authorized” shares is the maximum number of shares that the corporation could issue, or sell to the public. This number of authorized shares is defined by the corporate charter. The number of “issued” shares is the number of the authorized shares that have been sold to the public. Thus, “authorized but unissued” shares are available to the corporation to be issued in the future, often for acquisitions of other corporations. There is also the concept of “treasury” shares. Treasury shares have been issued by the corporation at some point in the past, but then repurchased by the corporation. For example, a corporation can make a self-tender offer to repurchase its own shares from the public. These shares become treasury shares, but they are treated the same as authorized but unissued shares, and can be re-issued for acquisitions or mergers. B. Statutory Mergers and Consolidations: The merger of two corporations can be accomplished by a merger or consolidation under the rules of the state incorporation statutes [Delaware 251] and the charters of the corporations. Merger or consolidation occurs after the Boards of Directors of the two corporations agree to the terms of the merger [(251(b)] and the shareholders vote in favor of the merger or consolidation [251(c)]. Shareholders can attend the meeting and vote their shares directly [212(a)]. Alternatively, shareholders can give another shareholder the right to vote their shares. This right is called a proxy [212(b)]. Shareholders would only give their proxy to a shareholder who was going to vote in the same manner that they would if they attended the meeting. Shareholder votes in which there are two conflicting views of what action should be taken by the corporation are commonly called “proxy contests”. In a merger, the combined assets and liabilities are merged into one of the two corporations and the other corporation is dissolved [259(a)]. The shareholders of the corporation that is dissolved exchange their shares for (authorized but unissued) shares of the remaining corporation. In a consolidation, a new corporation with a new charter is created (maybe even in a different state) and the assets and liabilities of both corporations are consolidated into the new corporation [259(a)]. The former shareholders of both corporations exchange their shares for new (authorized but unissued) shares of the new corporation. C. Hewlett v. Hewlett-Packard (2002): This case involved a proxy contest to decide whether the shareholders of Hewlett-Packard (HP) should vote to approve the merger of Hewlett-Packard and Compaq Computer that had been initiated and negotiated by the management of HP, particularly Carle Fiorina. The named plaintiff, Walter Hewlett, was the son of the co-founder and a holder of a large percentage of the stock of HP. After a very close vote in favor of the merger at a special shareholder meeting , Hewlett sued to invalidate the vote and enjoin the merger, claiming that the management of HP misrepresented material information about the financial synergies of the merger (“disclosure claim”). SEC Rule 14a-9 prohibits “false and misleading” statements of a “material fact” in a proxy solicitation. During discovery, it was found that the bottom-up estimates (VCUs) of the financial synergies from...
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