This is an extract of our Takeovers document, which we sell as part of our Business Associations Outlines collection written by the top tier of Thomas Jefferson School Of Law students.
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TAKEOVERS X. Takeovers, (buy all stock on open market in order to merge which is a hostile way of asset purchase; however, takeover is not possible for close corp. b/c cannot buy shares on open market to take over the company) A. Negotiation and lawyering to ensure that shareholders don't have a chance to
interfere in friendly deals B. Set up board with ability to resist hostile deals (cannot hold off takeover
forever even if chase off 1 acquirer there is always another) C. Poison Pills (distributes right to shareholders once threshold is met where they
have right to buy shares at a discount- makes tender offer takeover almost impossible) a. General Structure i.
Economic penalties for acquirer
ii. Directorial discretion to redeem rights iii. Retain power to sell the corporation in friendly deal iv. Allows board to negotiate with potential acquirers v. Pills will become effective when threshold is passed vi. Vulnerable to attack on the director front vii. Proxy fight to replace directors viii. Company searches for stronger alternatives b. An agreement that will distribute rights to existing shareholders, if a
certain threshold is met i. Rights to buy stick (company stock or acquirer stock) c. Impossibly dilutes the acquirer's shares in the company d. Makes takeover through purchasing shares effectively impossible e. To get around a poison pill i. Get the board to agree to redeem it ii. Offer to enter a friendly deal
iii. Try to replace the board without triggering the pill (avoid
tender route altogether) iv. Proxy fight
1. Seek the proxy of shareholders, allowing an acquirer to
vote their shares
2. Allows the acquirer to replace the board
3. The new board will then redeem the pill and the tender
offer goes forward f.
Defending against a Proxy (Making Proxy fight more difficult) i. Staggered boards (will require two elections to replace 2 years) ii. Supermajority requirements (acquirer will need to control the
board to effect the merger) g. Combination of a pill and a staggered board is a powerful anti-takeover
device h. Pills are becoming more and more powerful and are initially useful to
stop certain coercive tender offers (offer to buy stock above the market value which is perceived as coercive) i.
Restraints on pills i. Fiduciary Duty ii. The Market
1. If share price low & shareholders unsatisfied, nothing
will protect a board long-term
2. If acquirer's backers begin to doubt ability to pull
takeover off, financial support will withdraw & attempt at takeover will fail
3. If stock price is low, always open for a takeover
Other defenses i. Dead-hand & No-hand pill
1. Limit the ability of a proxy fight to avoid the pill
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