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“To supervise wisely the great corporations is well; but to look backwards to the
days when business was polite pillage and regard our great business concerns as
piratical institutions carrying letters of marque and reprisal is a grave error born in the
minds of little men. When these little men legislate they set the brakes going uphill.”
Elbert Hubbard
I. Teacher to Teacher Dialogue
dramatic effects on the formulation of public policy. These debates have tended to look like the
old cart-horse dilemma. Many economists argue that the laws of supply and demand are
“natural,” and as such, should not be encumbered by a labyrinth of law that only imposes
artificial barriers to that reality.
The world of corporate combinations through mergers and the like has been turned upside
down in recent history. Several factors have contributed to the frenzy of activity on the street, not
all of it well motivated. As with so many of these sort of fundamental changes to how society
orders its affairs, there is no one underlying motive or rhyme or reason to it, and arguments pro
the mechanisms of the law should not only allow this natural business evolution to take place, but
that to stifle it would do harm to society in the end.
On the other side of the coin, a number of commentators have argued that runaway activity in
the areas of mergers, acquisitions, buyouts, and the like breed a whole new generation of
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parachutes. The net result of this sort of short-term thinking is that although the financial market
manipulators are playing high stakes poker, our industrial, financial, and transportation
infrastructure has sunk into a quagmire of noncompetitiveness on the world marketplace.
The truth probably lies somewhere in between these poles when it comes to business
burden.
II. Chapter Objectives
1. Describe the process for soliciting proxies from shareholders and engaging in a proxy contest.
proxy materials.
3. Describe the process for approving a merger or share exchange.
hostile takeover.
5. Examine the use of multinational corporations in conducting international business.
III. Key Question Checklist
How are shareholders authorized to vote?
What is a short-form merger?
What is a tender offer?
What are the various methods of fighting a tender offer?
IV. Text Materials
Introduction to Corporate Acquisitions and Multinational Corporations
During the course of its existence, a corporation may go through certain fundamental changes. A
Proxy Solicitation and Proxy Contest
A proxy authorizes the proxy holder to vote the shareholder’s shares at the next meeting.
Federal Proxy Rules – The SEC has the authority to regulate solicitation of proxies. Full
disclosure of the subject matter, who is soliciting the proxy, and other pertinent information must
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Antifraud Provision – Material misrepresentation and omissions are prohibited, and can result in
Proxy Contests – One or more shareholders may oppose the actions taken by the incumbent
directors and want to have some or all of these directors removed and replaced. The insurgent
Shareholder Resolution
The SEC has adopted rules permitting shareholders to submit resolutions to be considered in a
shareholder vote. The submitting shareholder must have held at least $2k worth of shares or 1%
Ethics: Coca-Cola Says “No” to a Shareholder Resolution
The Coca-Cola Company is the world’s largest producer and distributor of nonalcoholic
Ethics Question: The subject matter of this shareholder resolution is obtaining a response from
Mergers and Acquisitions
Mergers – When one corporation is absorbed into another and ceases to exist, the surviving
Share Exchanges – In a share exchange, both corporations retain separate legal existences, but
Required Approvals for a Merger or Share Exchange – Ordinary mergers or share exchanges
require the recommendation of both boards and an affirmative vote of the majority of the
shareholders, unless a supramajority is required by the articles or bylaws. The approval of the
Short-Form Merger – If the parent corporation owns 90 percent or more of the stock in the
the parent corporation is employed.
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shareholders.
Dissenting Shareholder Appraisal Rights – Specific shareholders sometimes object to a
proposed ordinary or short-form merger, share exchange, or sale or lease of all or substantially all
Case 38.1 Dissenting Shareholder Appraisal Rights: Global GT LP v. Golden Telecom, Inc.
993 A.2d 497, 2010 Del. Ch. Lexis 76 (2010), Court of Chancery of Delaware
Facts: Golden Telecom was bought out by an entity, which had a conflict of interest with
Golden.
management behaved ethically.
Tender Offer
Tender Offer – If the board of the targeted corporation does not approve the merger, the
The Williams Act – This amendment to the SEC Act regulates all tender offers and establishes
disclosure requirements and antifraud provisions.
Tender Offer Rules – The Williams Act does not require that a tender offeror notify the target
previously tendered.
The pro rata rule requires that if too many shares are offered, they must be purchased on a
pro rata basis.
Antifraud Provisions – Section 14(e) of the Williams Act prohibits fraudulent, deceptive, and
Fighting a Tender Offer – Incumbent management may use some of the following strategies and
tactics in defending against hostile tender offers:
Persuasion of shareholders: Media campaigns are often organized to convince
shareholders that the tender offer is not in their best interests.
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Selling a crown jewel: Assets such as profitable divisions or real estate that is particularly
Pac-Man tender offer: With a Pac-Man (or reverse) tender offer, the target corporation
makes a tender offer on the tender offeror. Thus, the target corporation tries to purchase
the tender offeror.
Issuing additional stock: Placing additional stock on the market increases the number of
Creating an employee stock ownership plan: A company may create an employee stock
Flip-over and flip-in rights plans: These plans provide that existing shareholders of the
in rights plan).
Greenmail and standstill agreements: Most tender offerors purchase a block of stock in
the target corporation before making an offer. Occasionally, the tender offeror will agree
to give up its tender offer and agree not to purchase any further shares if the target
Business Judgment Rule – Boards of directors are protected from shareholder actions if they
made informed, honest decisions in good faith.
International Law: Foreign Acquisitions of U.S. Companies That Would Impair National
Security Are Prohibited
impair the “national security.”
State Antitakeover Statutes
Many states have enacted antitakeover statutes that are aimed at protecting corporations with ties
being taken over by other businesses.
Business Environment: Delaware Antitakeover Statute
The Delaware antitakeover statute provides that an acquirer of a Delaware corporation cannot
complete a merger with the acquired corporation for three years after purchasing 15 percent or
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of the target corporation’s shares.
Multinational Corporations
Many of the largest corporations in the world are multinational corporations—that is,
strategic partnerships, franchising, and other arrangements.
International Law: International Branch Office
A multinational corporation can conduct business in another country by using a branch office. A
branch office is not a separate legal entity but merely an office of the corporation. As such, the
branch office.
International Law: International Subsidiary Corporation
A multinational corporation can conduct business in another country by using a subsidiary
corporation. The subsidiary corporation is organized under the laws of the foreign country. The
International Law: India’s Multinational Corporation
The Tata Group is the largest private company in India. In 2008, Tata Motors purchased the high-
class British vehicle brands Jaguar and Land Rover from Ford Motor Company. Ford had owned
Africa which depend upon child labor.
Ethics questions: Hershey makes a lot of money, it is being sued by a union shareholder who
perhaps would like to unionize the children in West Africa. It is probably unethical for Hershey
V. Key Terms and Concepts
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Articles of merger—It must be filed with the secretary of state of the surviving
corporation.
Branch office—A multinational corporation can conduct business in another country by
using a branch office.
Business judgment rule—A rule that protects the decisions of the board of directors, who
act on an informed basis, in good faith, and in the honest belief that the action taken was
corporation.
Crown jewel—A valuable asset of the target corporation’s that the tender offeror
particularly wants to acquire in the tender offer.
Delaware antitakeover statute—It provides that an acquirer of a Delaware corporation
cannot complete a merger with the acquired corporation for three years after purchasing
value from the corporation.
Employee stock ownership plan—One of the methods of fighting a tender offer is
creating an employee stock ownership plan.
Exon-Florio Foreign Investment Provision—A federal law that mandates the President of
the United States to suspend, prohibit, or dismantle the acquisition of U.S. businesses by
when acting on behalf of the corporation.
Flip-in rights plan—It involves existing shareholders of the target corporation converting
their shares for a greater number of shares of the acquiring corporation.
Flip-over rights plan—It involves existing shareholders of the target corporation
converting their shares for debt securities of the target company.
certain fundamental changes.
Greenmail—The purchase by a target corporation of its stock from an actual or perceived
tender offeror at a premium.
Hostile tender offer—Tender offers made without the permission of the target company’s
management.
Incumbent director—Current directors of the corporation.
incumbent directors.
International branch office—A multinational corporation can conduct business in another
country by using this entity.
International subsidiary corporation—Organized entity under the laws of the foreign
country.
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exist.
Multinational corporation—A corporation that operates in more than one country. Also
called a transnational corporation.
after share exchange.
Poison pills—Defensive strategies that are built into the target corporation’s articles of
incorporation, corporate bylaws, or contracts and leases.
Pro rata rule—A rule that says shares must be purchased on a pro rata basis if too many
shares are tendered.
to vote the shareholder’s shares.
Proxy contest—When opposing factions of shareholders and managers solicit proxies
from other shareholders, the side that receives the greatest number of votes wins the
proxy contest.
Proxy statement—A document that fully describes (1) the matter for which the proxy is
Exchange Act of 1934 that gives the SEC the authority to regulate the solicitation of
proxies.
Section 14(e) of the Williams Act—A provision of the Williams Act that prohibits
fraudulent, deceptive, and manipulative practices in connection with a tender offer.
concern social issues.
Short-form merger—A merger between a parent corporation and a subsidiary corporation
that does not require the vote of the shareholders of either corporation or the board of
directors of the subsidiary corporation.
Standstill agreement—The agreement of the tender offeror to abandon its tender offer and
of the subsidiary corporation.
Supramajority—The articles of incorporation or corporate bylaws can require the
approval of a supramajority, such as 80 percent of the voting shares.
Surviving corporation—The corporation that continues to exist after a merger.
State antitakeover statutes—Statutes enacted by state legislatures that protect
situation.
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corporation.
White knight merger—Mergers with friendly parties—that is, parties that promise to
leave the target corporation and/or its management intact.
