Chapter 36
Corporate Acquisitions,
Takeovers, and Termination
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. Whether a combination is merger or a consolidation, the rights and liabilities of
the shareholders are the same.
2. In a consolidation, two or more corporations combine in such a way that each
corporation ceases to exist.
3. In a share exchange, one corporation will issue shares or pay some fair
consideration to the shareholders of another corporation that will then cease to
exist.
4. A merger and a consolidation are not two legally distinct proceedings.
5. In a consolidation, the consolidating corporations become subsidiaries of the
new corporation.
6. A merger involves the legal combination of one or more corporations.
7. In a share exchange, some or all of the shares of one corporation are
exchanged for the shares of another, and both corporations cease to exist.
8. The officers and other employees of each corporation involved must approve a
share exchange plan.
9. In most cases, a corporation’s common stockholders need to approve a
merger.
10. In a short-form merger, neither corporation’s shareholders need to approve the
merger.
11. State law establishes the specific procedures for mergers.
12. The board of directors of each corporation involved must approve a merger.
CHAPTER 36: CORPORATE ACQUISITIONS, TAKEOVERS, AND TERMINATION 3
13. A short-form merger is the legal combination of two or more corporations
online.
14. A corporation that is acquiring all or substantially all of the assets of another
corporation by direct purchase must obtain shareholder approval for the
purchase.
15. An appraisal right is available only when a state statute specifically provides for
it.
16. Appraisal rights normally extend to regular mergers and consolidations.
17. When a sale of assets amounts to what in fact is a consolidation, the acquiring
corporation inherits the selling corporation’s liabilities.
18. A sale of all of a corporation’s assets requires the approval of its shareholders.
19. Generally, an acquiring corporation deals directly with a target company’s
shareholders in seeking to purchase the shares they hold.
20. Federal securities laws strictly control the terms under which most tender offers
are made.
21. No state has passed an antitakeover statute.
22. A target corporation is a corporation being acquired through the purchase of a
substantial number of the voting shares of its stock.
23. Winding up is the process by which corporate assets are liquidated.
24. A target corporation’s attempted takeover of an acquiring corporation is referred
to as the poison pill defense.
25. To resist a takeover, a target company can make a self-tender.
26. Dissolution is the legal death of the artificial “person” of a corporation.
27. If a corporation is dissolved, its assets can be liquidated without further notice
to a party with a claim against the firm.
28. Only a board of directors can initiate the dissolution of a corporation.
29. When a corporation is dissolved voluntarily, the corporation must file articles of
dissolution with the state.
30. When dissolution takes place by voluntary action, the shareholders are
responsible for winding up the affairs of the corporation.
31. A court cannot dissolve a corporation for mismanagement.
32. A state court can dissolve a corporation for engaging in ultra vires acts.
33. A state court can dissolve a corporation for committing fraud to the state during
incorporation.
34. When dissolution is involuntary, the court will appoint a receiver to wind up the
corporate affairs.
35. When deciding which form of business organization to choose,
businesspersons normally consider only one factor.
MULTIPLE CHOICE QUESTIONS
1. Like other corporations, Western Steel Corporation can extend its operations
through
a. a merger.
b. a dissolution.
c. a termination.
d. a winding up.
2. Like other corporations, Restwell Hotels Inc. can extend its operations through
a. liquidating and distributing its assets.
b. buying the assets of, or a controlling interest in, another corporation.
c. filing articles of dissolution with the state.
d. appointing a receiver to wind up the corporate affairs.
3. Natural Laminate Corporation and Oak Wood Flooring Company combine so
that all that remains after the papers have been signed is Natural Laminate.
This is
a. a consolidation.
b. a merger.
c. a purchase of assets.
d. a share exchange.
Fact Pattern 36-1 (Questions 4-6 apply)
Grandview Office Suites, Inc., merges with Hilltop Commercial Properties, Inc. Only
Hilltop remains.
4. Refer to Fact Pattern 36-1. Grandview owed money to Innovative Décor, Inc.,
and other creditors. After the merger, Hilltop must pay
a. all of Grandview’s debts.
b. half of Grandview’s debts.
c. none of Grandview’s debts unless there is a formal transfer of liability.
d. only debts that Grandview incurred after a merger was proposed.
5. Refer to Fact Pattern 36-1. Grandview held rights in certain real property. After
the merger, Hilltop acquires the rights
a. automatically.
b. only after completing certain additional statutory procedures.
c. only Grandview’s former shareholders expressly approve.
d. only after a required formal transfer.
6. Refer to Fact Pattern 36-1. The articles of merger include changes that differ
from Hilltop’s articles of incorporation. The articles of incorporation
a. are deemed amended to include the changes.
b. are replaced by the articles of merger.
c. effectively prevent the merger.
d. preempt the articles of merge.
Fact Patter 36-2 (Questions 7–9 apply)
Shale Oil Processing Corporation combines its assets and debts with those of Tierra
Frakking Company to form United Resources, Inc. Shale and Tierra cease to exist.
7. Refer to Fact Pattern 36-2. United Resources assumes
a. all of Shale’s and Tierra’s debts.
b. half of Shale’s and Tierra’s debts.
c. none of Shale’s and Tierra’s debts unless there is a formal transfer of
liability.
d. only debts that Shale and Tierra incurred after a combination was
proposed.
8. Refer to Fact Pattern 36-2. The formation of United Resources is
a. a consolidation.
b. a merger.
c. a purchase of assets.
d. a share exchange.
9. Refer to Fact Pattern 36-2. United Resources acquires
a. all of Shale’s and Tierra’s assets.
b. half of Shale’s and Tierra’s assets.
c. none of Shale’s and Tierra’s assets unless there is a formal transfer.
d. only assets that Shale and Tierra acquired after a combination was
proposed.
10. Lorelei files a suit against Memphis Recording Company. While the suit is
pending, Memphis Recording consolidates with Nashville Music Corporation to
form Omni Productions, Inc. Now, liability in the suit, if any, rests with
a. Omni.
b. Memphis Recording and Nashville Music.
c. Lorelei.
d. no one.
11. Through a certain transaction, Coffee Bean Cafés, Inc., acquires all of the
shares of Deli Dining Corporation for some of Coffee Bean’s shares. Both
Coffee Bean and Deli Dining continue to exist. This is
a. a consolidation.
b. a share exchange.
c. a short-form merger.
d. a purchase of assets.
12. A merger between Blended Coffee Corporation and Cowland Creamery Inc.
can be expressed as Blended Coffee + Cowland Creamery =
a. Cowland Creamery.
b. Delite Dairy Corporation.
c. Delite Dairy Corporation + EZ Stir & Sip Inc.
d. EZ Stir & Sip Inc.
13. Ground-Up Construction Corporation (CCC) has a right of action against
Heavyquip, Inc. Ground-Up Construction merges with Investors Development,
Inc., with Investors absorbing Ground-Up. After the merger, Ground-Up’s right
of action against Heavyquip can be exercised by
a. Ground-Up.
b. Investors.
c. Heavyquip.
d. no one.
14. Eagle Financial Corporation merges with First Bank Corporation, with Eagle
Financial absorbing First Bank. After the merger
a. a different, new corporation is the surviving corporation.
b. Eagle Financial and First Bank are both surviving corporations.
c. Eagle Financial is the surviving corporation.
d. First Bank is the surviving corporation.
15. Eye Appliance Company and Fresh Views, Inc., wish to combine all of their
assets, stock, and personnel into a new firm to be called Goggles Corporation.
This is
a. a consolidation.
b. a merger.
c. an exchange of assets.
d. a takeover.
16. Jen files a suit against Kopper Kettle Company. While the suit is pending,
Kopper Kettle merges with Luminous Pans, Inc., with Luminous absorbing
Kopper Kettle. Now, liability in the suit, if any, rests with
a. Jen.
b. Kopper Kettle.
c. Luminous.
d. no one.
17. Precise Device Corporation and Quality Instruments, Inc., decide to merge.
This corporate combination does not require the approval of
a. Precise and Quality’s directors.
b. Precise and Quality’s officers and employees.
c. Precise’s shareholders.
d. Quality’s shareholders.
18. Realty Credit Company and Second Mortgage Corporation plan to consolidate.
Most likely, the articles of consolidation will be filed with
a. the county recording office.
b. the Securities and Exchange Commission.
c. the state’s secretary of state.
d. the local chamber of commerce.
19. Mall Stores Corporation owns 95 percent of the shares of Niche Retail
Corporation. Mall Stores combines with Niche Retail, but only Mall Stores
continues to exist. This transaction was
a. a consolidation.
b. a tender offer.
c. a short-form merger.
d. a termination.
20. Algorhythm Stock Trades, Inc., and Big Data Market Analyses, Inc., plan to
merge. Most likely, the articles of merger will be filed with
a. the county recording office.
b. the local chamber of commerce.
c. the state’s secretary of state.
d. the Securities and Exchange Commission.
21. Broncobuster BarBQ Company and Cowpuncher Cuisine, Inc. decide to
combine. Deanna, a Cowpuncher shareholder, is dissatisfied with the price that
she will receive for her stock. In the absence of fraud or other illegal conduct,
Deanna’s exclusive remedy is to
a. exercise an appraisal right.
b. file a suit to delay the process.
c. refuse to agree to the deal, which cannot then proceed.
d. acquire stock from the other shareholders and thereby obtain corporate
control.
22. Raven is a shareholder of Quantum Mechanix Corporation. Raven could
normally exercise appraisal rights if Quantum participated in
a. a consolidation.
b. a dissolution.
c. a liquidation.
d. a winding up.
23. Giant Lift Corporation purchases all of the assets of Heavy Hydraulics
Corporation. With respect to Heavy Hydraulics’s liabilities, Giant Lift is
a. automatically responsible.
b. not responsible under any circumstances.
c. responsible if Heavy Hydraulics is a competitor of Giant Lift.
d. responsible if the sale is in fact a merger or consolidation.
24. Ben is a shareholder of Cotton Fabric, Inc., whose management is considering
extending its operations through some type of combination or acquisition with
Denim Dungaree Corporation. Ben could normally exercise appraisal rights if
Cotton Fabric participates in
a. a sale of substantially all of the corporate assets.
b. a dissolution.
c. a tender offer.
d. none of the choices.
25. Mediterranean Herbs Inc. wants to purchase all of the assets of Nature’s Spice
Company. Olina is a Nature’s Spice shareholder. Approval of the deal must be
obtained from the shareholders of
a. Mediterranean Herbs only.
b. Nature’s Spice only.
c. both corporations.
d. neither corporation.
26. Bread & Bagels Corporation wants to purchase all of the assets of Coffee &
Tea Inc. Dolly is a Coffee & Tea shareholder. The approval of Dolly and other
Coffee & Tea shareholders is necessary
a. in all circumstances.
b. in no circumstances.
c. only if Coffee & Tea will be paid with unauthorized, unissued stock.
d. only if Bread & Bagels agrees to assume Coffee & Tea’s liabilities.
27. Continental Capital, Inc., increases its holdings, making tender offers in many
states. These offers are subject to
a. federal securities laws only.
b. state antitakeover statutes only.
c. no specific statutory requirements or limitations.
d. state antitakeover statutes and federal securities laws.
28. Corporate Properties, Inc., attempts to acquire a substantial number of the
shares of Downtown Investment Corporation through a public offer to
Downtown’s shareholders. This is
a. a consolidation.
b. a tender offer.
c. a short-form merger.
d. a termination.
29. Ruff Games, Inc., wishes to acquire a controlling interest in Smart Toy Com–
pany by buying its stock. Smart Toy is
a. an alien corporation.
b. an acquiring corporation.
c. a receiver.
d. a target corporation.
30. Salt Corporation wants to acquire or merge with Pepper Corporation. Salt
should
a. file a plan of merger with the secretary of state.
b. file an article of merger with Pepper.
c. make a tender offer to the shareholders of Pepper.
d. make a tender offer to the shareholders of Salt.
Fact Pattern 36-3 (Questions 31–32 apply)
Popular Movies Corporation wants to gain control of Quality Films, Inc. The
companies negotiate for several months, without coming to terms. Popular Movies
decides to pursue a takeover attempt. Quality Films decides to resist.
31. Refer to Fact Pattern 36-3. Quality Films issues shares that its shareholders
can exchange for cash if a takeover is successful, intending to make Popular
Movies’s takeover attempt too expensive. This is a
a. crown jewel defense.
b. Pac-Man defense.
c. poison pill defense.
d. white knight defense.
32. Refer to Fact Pattern 36-3. Quality Films solicits a merger with Real2Reel
Corporation, a third party, which makes a better offer to Quality Films’s share–
holders. Real2Reel is a
CHAPTER 36: CORPORATE ACQUISITIONS, TAKEOVERS, AND TERMINATION 17
a. crown jewel.
b. Pac-Man.
c. poison pill.
d. white knight.
33. Sangfroid Business Corporation can be compelled to dissolve by
a. its creditors only.
b. itself, through its shareholders and directors, only.
c. itself, through its shareholders and directors, or the state.
d. the state only.
Fact Pattern 36-4 (Questions 34–35 apply)
Diversified Corporation’s articles of incorporation prohibit a sale of its assets without a
vote of the board of directors. Diversified’s officers sell some assets to Enterprise
Company without notice to the board. The officers also fail to pay Diversified’s taxes
on time, and some Diversified funds are not accounted for.
34. Refer to Fact Pattern 36-4. With respect to Diversified’s shareholders, this
conduct is most likely
a. not oppressive because it is undertaken by Diversified’s officers.
b. oppressive because Diversified’s directors may be personally liable.
c. oppressive because Diversified’s shareholders may be personally liable.
d. oppressive because it departs from the standards of fair dealing.
35. Refer to Fact Pattern 36-4. The appropriate remedy is most likely
a. a sale of the rest of Diversified’s assets to its directors and shareholders.
b. Diversified’s consolidation or merger with Enterprise.
c. Diversified’s dissolution.
d. payment of damages to Diversified’s officers.
ESSAY QUESTIONS
1. Natural Food Corporation proposes to combine with Organic Produce, Inc., and
asks Natural Food shareholders to vote on the proposal. Phoebe, a Natural
Food shareholder, votes against it, but is outvoted by the other shareholders. Is
there an action that Phoebe can take to avoid being forced to go along with the
transaction? If so, what can she do? After the combination, Organic Produce
ceases to exist. Natural Food is the surviving firm. What type of combination is
this?
2. Brock is a shareholder of Competent Homebuilders Corporation (CHC). For the
last few years, business has not been profitable for CHC. The firm has lost
money on its operations. There has been some profit through sales of company
assets, but the board of directors has refused to declare a dividend. This last
year, the firm’s accountants failed to file federal income tax returns and the
board refused to pay the tax. Brock takes a close look at the firm and protests
to the board, in particular over the failure to declare a dividend, but the board
ignores the complaint. Which of these events, if any, would form a ground for a
court to order the dissolution of CHC, on Brock’s petition? If the court denies
the petition, could Brock and the other shareholders dissolve CHC?