What is the difference between a corporate merger and a corporate consolidation? What is the difference between a corporate merger and a corporate consolidation? What are the steps of a merger, a consolidation, or a share exchange procedure?  What are the steps of a merger, a consolidation, or a share exchange procedure?  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

Under what circumstances is a corporation that purchases the assets of another corporation responsible for the liabilities of the selling corporation? Under what circumstances is a corporation that purchases the assets of another corporation responsible for the liabilities of the selling corporation? What actions might a target corporation take to resist a takeover attempt?  What actions might a target corporation take to resist a takeover attempt?  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3

What are the two ways in which a corporation can be voluntarily dissolved? Under what circumstances might a corporation be involuntarily dissolved by state action? What are the two ways in which a corporation can be voluntarily dissolved? Under what circumstances might a corporation be involuntarily dissolved by state action? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4

Merger: combination of two or more corporations (A & B), after which only one company remains (A), with all of B’s rights and obligations. Merger: combination of two or more corporations (A & B), after which only one company remains (A), with all of B’s rights and obligations. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5

Consolidation: when two or more corporations (A & B) combine and a new corporation (C) is created, with A and B ceasing to exist. Consolidation: when two or more corporations (A & B) combine and a new corporation (C) is created, with A and B ceasing to exist. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6

Share Exchange: some or all the shares of one corporation are exchanged for some or all of the shares of another corporation. Share Exchange: some or all the shares of one corporation are exchanged for some or all of the shares of another corporation. Procedures: Procedures: – Board of Directors of each corporation involved must approve the merger plan.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7

Procedures (cont’d): Procedures (cont’d): – Majority of shareholders of each corporation must approve. – Then, documents are filed with Secretary of State who issues a certificate of merger. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8

Short-Form Mergers. Short-Form Mergers. – For “Parent-Subsidiary” Merger. – No approval of shareholders needed. – Parent must own at least 90% of each class of stock of the subsidiary corporation. – Board of parent corporation approves and new articles filed. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9

Shareholder Approval: Shareholder Approval: merger, consolidation, sale of most of corporation’s assets not in the ordinary course of business, adverse amendments to the articles of incorporation. Appraisal Rights. Shareholder has the right to dissent from merger.  Appraisal Rights. Shareholder has the right to dissent from merger.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10

Appraisal Rights (cont’d). Shareholder has the right to be “bought out” of his/her shares. Appraisal Rights (cont’d). Shareholder has the right to be “bought out” of his/her shares. – Procedures: corporation notifies shareholders, who can demand fair market value appraisal. – Appraisal Rights and Shareholders Status: dissenting shareholder looses voting rights. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11

The acquiring corporation extends its ownership and control over the physical assets of another company. The acquiring corporation extends its ownership and control over the physical assets of another company. – Acquiring corporation shareholders do not need to approve. Sale of Corporate Assets. Sale of Corporate Assets. – Must have approval of directors and shareholders.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12

Successor Liability in Purchases of Assets. Successor Liability in Purchases of Assets. – Generally, the purchasing corporation is not automatically responsible for the liabilities of the selling company. – In the following situations, the purchasing company will be held to have assumed both the assets and liabilities of the selling company.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13

Successor Liability (cont’d). Purchasing company assumes both liabilities and assets if: Successor Liability (cont’d). Purchasing company assumes both liabilities and assets if: – Acquiring corporation impliedly or expressly assumes the liabilities. – Sale amounts to what is really a merger or consolidation. – Purchaser continues the seller’s business and retains the same personnel.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14

Successor Liability (cont’d). Purchasing company assumes both liabilities and assets if: Successor Liability (cont’d). Purchasing company assumes both liabilities and assets if: – Sale is fraudulently executed to escape liability. American Standard, Inc. v. OakFabco, Inc. – CASE 36.1 American Standard, Inc. v. OakFabco, Inc. (2010). Was the purchasing company responsible for liabilities after closing? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15

Common alternative to merger or consolidation is the purchase of a controlling interest (up to 51%) of a “target” corporation’s stock (called a “takeover”) giving the purchaser corporation controlling interest in the target.  Common alternative to merger or consolidation is the purchase of a controlling interest (up to 51%) of a “target” corporation’s stock (called a “takeover”) giving the purchaser corporation controlling interest in the target.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16

What is a Tender Offer? What is a Tender Offer? – A publicly advertised offer addressed to all shareholders of the target is called a tender offer. – Tender offer is usually higher than market value per share but conditioned on the acquisition of a certain % of shares. Can be in exchange for aggressor's stock. The SEC strictly regulates tender offers. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 17

Responses to Tender Offers. Responses to Tender Offers. – Directors may view the offer as favorable or unfavorable. If favorable, then a recommendation is made to the shareholders. – If unfavorable, directors may make a self-tender to buy stock, launch a media campaign, or issue additional stock. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18

Takeover Defenses and Directors’ Fiduciary Duties. Takeover Defenses and Directors’ Fiduciary Duties. – Whatever they do, defense tactics must be reasonable, and directors must not breach their fiduciary duty to corporation in resistance. – Actions judged by the business judgment rule. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20

Voluntary Dissolution: Voluntary Dissolution: – Shareholders can initiate dissolution or the board can initiate by submitting a proposal to the shareholders. – CASE 36.2 Parent v. Amity Autoworld, Ltd. (2007). Why did the court require Staluppi’s name on the complaint? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21

Involuntary Dissolution. Involuntary Dissolution. – State can dissolve a corporation for failure to comply with state regulations. – Court can dissolve a corporation if there is a deadlock, the acts of directors are fraudulent or illegal.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22

Involuntary Dissolution (cont’d). Involuntary Dissolution (cont’d). – Court can dissolve if assets are being misapplied or wasted. – Shareholders are deadlocked and failed to resolve. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23

Winding Up. Winding Up. – Voluntary Dissolution: Board liquidates and acts as trustees of assets. Court will appoint a receiver if board refuses; or creditors want a receiver. – Involuntary Dissolution: court appoints receiver. – Liquidated assets first to creditors, then shareholders. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28