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Protecting and Selling Control - Tender Offers/Proxy Contests A. Methods and Defenses i. Tender Offers (puts the shareholders in a prisoner's dilemma) a) Defenses
? Poison Pill: a shareholder rights plan
? Staggered board ii. Proxy Contests a) attempt to pack the board with those friendly to the bidding company (generally done in conjunction with tender offer so that the newly packed board can redeem the poison pill) B. Regulatory Framework i. Federal Regulation a) Purposes: (1) ensure that shareholders receive the information they need to make informed decisions; (2) protect shareholders from deceptive acts and practices; (3) outlaw certain coercive tactics that otherwise could be employed by bidders or target companies during tender offers b) Tender offers
? The federal regulation of tender offers is contained in the Williams Act, of which amended the Securities Exchange Act of 1934 (1934 Act), and in the SEC regulations thereunder.
? Principle provisions:
? Any person (including corporations, etc.) who makes a tender offer for more than 5% of a public corporation's stock must file its offer with the SEC, and publish as part of its offer information about the bidder and its controlling shareholders, the bidder's purpose, and the terms on which the bidder plans to consummate any second-step transaction. SS
? A tender offer must remain open for a minimum of 20 business days. Rule 14e-1.
? Shares that are tendered may be withdrawn any time before the offer expires. SS 14(d)(5), Rule 14d-7
? A new offer, or an increase in the price of the original offer, extends the duration of the offer and the withdrawal periods by 10 business days. Rule 14e-1.
? If the offer is for less that all of the corporation's shares, the bidder must accept tendered shares on a pro-rata basis. SS 14(d)(6), Rule 14d8.
? If the bidder raises it offering price during the offer, it must pay the higher price to all tendered shareholders, including those who tendered in response to its previous, lower offer. SS 14(d)(7).
?????It is unlawful for any person, including the bidder and the target company, "to make any untrue statement of material fact or omit to 1
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