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Mergers Outline

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MERGERS IX. Mergers, (Market for corporate control, if managed poorly market will show stock is underperforming & will be susceptible to takeover; however, underperforming companies can be fixed by operation of market forces), 2 types of mergers: friendly and hostile A. One or more domestic corporations may merge with a domestic or foreign

corporation or other entity pursuant to a plan of merger (MBCASS11.02) a. Plan for merger: (2 types- friendly and hostile) i. 3 ways to merge:

1. Wholly owned subsidiary: merger of 2 companies to

form a 3rd company a. Target shareholders get to vote on merger

(exception: short form merger) b. Acquiring shareholders generally never get to

vote unless acquirer has to issue a lot of new stock to amend charter or if merger itself requires amend to charter, if dilute of share issuance

2. Asset purchase: 1 company buys everything of 2nd

company a. Target shareholders get to vote

3. Stock purchase: 1 company buys all shares of other

company a. Target shareholders get to vote b. Only one that can be used for hostile purchase

b/c board can't control who buys their stock i. Tender offer: if shareholders agree to sell

to acquiring company and enough shareholders agree, then once enough shareholders agree the acquiring company will actually buy the shares at a set price ii. Reasons for merger:

1. Keep companies out of hands of rivals

2. Expansion of markets

3. Diversification

4. Prestige iii. All assets and liabilities of target company transfer to acquirer

when # of acts happen (MBCASS11.04)

1. Both boards approve the merger

2. Shareholders w/ voting rights approve the merger

3. Company files paper in state of incorporation iv. Time lag between agreement to merge & final merger

1. Due diligence (most important): going through target's

Ks for change in control provisions, real estate deeds/liabilities

2. Any further negotiating terms

3. Securing regulatory approval

b. Short-form merger, (MBCASS11.05): i. Parent company merges w/ 90% or more owned subsidiary ii. Parent may buy them out, w/out needing a shareholder vote iii. Appraisal Rights, (MBCASS13.02):

1. Minority shareholders have right to an appraisal if they

disagree with the price offered in a short-form merger iv. Shareholders of acquirer

1. Get to vote if: a. Charter of the merged company will be changed

by the merger b. If the rights in their shares will be affected

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