Corporations – Mergers and Takeovers

Flashcards for reviewing key concepts related to corporate mergers, takeovers, and termination.

What is a merger?

A legal combination of two or more corporations, where only one continues to exist as the surviving corporation.

What happens to the disappearing corporation in a merger?

It ceases to exist as a separate entity, and its rights, property, assets, debts, and obligations are acquired by the surviving corporation.

What is consolidation?

A combination of two or more corporations where all original corporations cease to exist, and a new one emerges.

How are the results of a consolidation similar to a merger?

The new corporation possesses all the rights, privileges, powers, property, assets, debts, and obligations previously held by the original corporations.

Why are consolidations less common among for-profit corporations?

It is often more advantageous for one of the corporations to survive, while nonprofits may prefer consolidation as it suggests a new beginning.

What is a share exchange?

An exchange of some or all shares of one corporation for shares of another, but both firms continue to exist.

What is a holding company and how is it created?

A company that owns part or all of other companies’ outstanding stock, often created through share exchanges.

What is a parent corporation?

A corporation that owns all of the shares of another corporation.

What is a subsidiary corporation?

A corporation whose shares are entirely owned by another corporation (the parent corporation).

What are the basic steps in a merger or consolidation procedure?

1) Board of directors approval, 2) Shareholder approval, 3) Filing of the plan with the Secretary of State, 4) State issues a certificate of merger/consolidation.

What is a short-form merger?

A simplified procedure for merging a substantially owned subsidiary into its parent corporation, without shareholder approval.

When can a short-form merger be used?

When the parent corporation owns at least 90% of the outstanding shares of each class of stock of the subsidiary corporation.

What are appraisal rights?

The right of a dissenting shareholder to be paid the fair value of their shares if they disapprove of a merger or consolidation.

Under what circumstances are appraisal rights the exclusive remedy for dissenting shareholders?

Absent fraudulent or illegal conduct.

What happens when a corporation acquires all or substantially all of the assets of another corporation by direct purchase?

The acquiring corporation extends its ownership and control over more physical assets.

Does the acquiring corporation need shareholder approval for a direct purchase of assets?

No, except in limited circumstances.

Does the corporation selling its assets need shareholder approval?

Yes, it must obtain approval from both its board of directors and its shareholders.

Under what circumstances is a corporation that purchases the assets of another corporation responsible for the seller’s liabilities?

1) Express or implied assumption of liabilities, 2) Sale amounts to a merger or consolidation, 3) Purchaser continues the seller’s business with the same personnel, 4) Sale is fraudulently executed to escape liability.

What is a corporate takeover?

The process of acquiring control over a corporation by purchasing a substantial number of its voting shares.

What is a tender offer?

A public offer by an acquiring corporation to all shareholders of the target corporation to purchase their shares.

What is a hostile takeover?

When the target firm's board opposes the takeover.

What is a self-tender?

An offer by a target company to acquire stock from its own shareholders to retain corporate control.

Define Crown Jewel.

Management makes the company less attractive by selling the company's most valuable asset to a third party.

Define Golden Parachute.

Extravagant compensation packages that must be paid to top managers if they are forced to leave the company after a takeover.

Define Greenmail.

A target company pays a higher-than-market price to repurchase the stock bought by the acquiring corporation to regain control.

Define Pac-Man.

The target corporation attempts its own takeover of the acquiring corporation.

Define Poison Pill.

The target corporation issues its shareholders rights to purchase additional shares at low prices, making the takeover more expensive for the acquirer.

Define White Knight.

The target corporation solicits a merger with a third party, which then makes a better tender offer to the target’s shareholders.

How can a target corporation raise an antitrust violation as a takeover defense?

The target corporation can ask the government to prevent the takeover because it would result in the acquiring corporation having too much market power.

What are the two phases of terminating a corporation's life?

Dissolution and winding up.

What is dissolution?

The legal death of the artificial "person" of the corporation.

What is winding up?

The process by which corporate assets are liquidated and distributed among creditors and shareholders.

What are the two ways a corporation can be voluntarily dissolved once it has issued shares and commenced business operations?

Shareholders can initiate dissolution by a unanimous vote, or directors can propose dissolution and submit it to the shareholders for a vote.

What must the articles of dissolution include?

The name of the corporation, the date on which the dissolution was authorized, and how the dissolution was authorized.

What are the reasons for involuntary dissolution?

Failure to comply with administrative requirements, fraudulent misrepresentations, or engaging in mismanagement.

Under what circumstances can shareholders petition a court for corporate dissolution?

Board deadlock, directors acting fraudulently or illegally, misuse of corporate assets, or shareholder deadlock in voting power.