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CHAPTER 41
MERGERS AND TAKEOVERS
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 41.1—LEGAL REASONING QUESTIONS
1. The announcement of a proposed merger often triggers a shareholder action alleging
that directors breached their fiduciary duty by agreeing to sell the corporation for an
unfair price. When and how does such litigation benefit the shareholders? In the context
of a proposed merger, a shareholder suit alleging that directors breached their fiduciary duty by
recovery of significant damages from the liable parties.
2. In the Trulia case, the settlement, if approved, would not have yielded any genuine
benefit for the shareholders. If the court had approved the settlement, however, who
would have benefited? The result of the litigation and the settlement in the Trulia case, even if
the court had approved it, did not, and would not, produce any real benefit for the shareholders.
3. When the parties to a dispute agree to a settlement, they share the same interest in
obtaining the court’s approval. What are the advantages and disadvantages of this
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situation? When all of the parties to a dispute share the same interest in obtaining a court’s
approval of a settlement, the process takes on a non-adversarial character. As an advantage,
CASE 41.2—CRITICAL THINKING
WHAT IF THE FACTS WERE DIFFERENT?
Suppose that the Airgas board had opposed the takeover in order to perpetuate the
directors’ own corporate power, and not to preserve shareholder value. Would the result
SOCIAL
One reason for using a poison pill defense is to gain time for the shareholders of a target
corporation to obtain the information they need to make an informed decision about a
tender offer. How much time is enough? To be effective, a poison pill cannot have a set
expiration date. Even though plenty of information may be available to the shareholders,
CHAPTER 41: MERGERS AND TAKEOVERS 3
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Dissenting shareholder’s rights
Bonsetti has appraisal rights as a minority shareholder dissenting to the merger. The
2A. Short-form merger procedure
A short-form merger would not be possible in this case. The Revised Model Business
Corporation Act provides a procedure for the merger of a substantially owned subsidiary
3A. Acquiring corporation’s offer
Hula’s offer to purchase GVG stock is called a tender offer. An acquiring corporation can deal
directly with a target company’s shareholders in seeking to buy the shares they hold and gain
4A. Surviving corporation’s liability
After a merger, the surviving corporation automatically acquires all of the merged corporation’s
property and assets without the necessity of a formal transfer. Also, the survivor becomes liable
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
Corporate law should be altered to prohibit incumbent management from using
most of the legal methods available for fighting takeovers. Rarely will an outside group
attempt a corporate takeover if the target corporation is well run. For when a publicly held
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ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. Macro Corporation and Micro Company combine, and a new organization, MM, Inc.,
takes their place. What is the term for this type of combination? What happens to the
assets, property, and liabilities of Micro? This combination is a consolidation (a new entity
2A. Peppertree, Inc., hired Robert McClellan, a licensed contractor, to repair a
condominium complex that was damaged in an earthquake. McClellan completes the
work, but Peppertree fails to pay. McClellan is awarded $181,000 in an arbitration
proceeding. Peppertree then forms another corporation and transfers all of its assets to
the new corporation, without notifying McClellan. Can McClellan hold Peppertree’s
shareholders personally liable for the debt? Why or why not? Maybe. If a corporation
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
41-1A. Corporate merger
Ajax apparently has given shareholder Alir notice of the meeting for approval of the merger. In
addition, however, Ajax should have notified Alir of her right to dissent and of her right, should
41-2A. Purchase of assets
PC is liable for PPI’s obligation to Takahashi. Generally, a corporation that acquires the assets,
but not the stock, of another corporation is not obligated for the liabilities of the acquired corpo-
41-3A. Corporate takeover
Block obviously cannot get Alitech’s patent by merger, and the present Alitech board of directors
has refused Block a license to use the patent. Therefore, Block’s best chance to gain the
control and use of the patent is to purchase enough Alitech voting shares to control the
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
41-4A. Successor liability
No. There is no successor liability in this situation. The Watergate Hotel had ceased operations
in 2007. Under the new owner, PB Capital, there was new management and a new workforce.
The company was not a continuation of the previous business operation. In determining whether
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41-5A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Purchase of assets
Yes. Interline is most likely liable for the unpaid amount on the GATT contract with Call Center.
An acquiring corporation will be held to have assumed the liabilities of the selling corporation in
the following situations:
(1) The purchasing corporation expressly or impliedly assumes the seller’s liabilities.
41–6A. Purchase of assets
No, Alcoa does not have to indemnify Glencore for costs related to Lockheed’s suit. Generally, a
corporation that purchases the assets of another corporation is not automatically responsible for
the liabilities of the selling corporation. Exceptions to this rule are made in certain
41-7A. SPECIAL CASE ANALYSIS—Dissolution
Case No. 41.1
In re Trulia, Inc. Stockholder Litigation
Court of Chancery of Delaware, 2016
129 A.3d 884
(a) Issue: On what basis did the plaintiffs in this case seek to enjoin the proposed
merger? In the Trulia case, the attorneys for a group of shareholders argued that the plaintiffs
had not been given enough information before they were asked to vote on a proposed merger.
(b) Rule of Law: What is the standard for the disclosure of information by corporate
directors in connection with any shareholder action? Under Delaware state law—the suit in this
case was brought in a Delaware court—when shareholders are asked to vote on a proposed
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(c) Applying the Rule of Law: How did the disclosure standard apply to the reliance
of the directors on the advice of a financial advisor in making a decision on a proposed merger?
The information sought by the attorneys for the plaintiffs in the Trulia case, which the directors
(d) Conclusion: How did the court’s conclusion with respect to the information
provided to the shareholders relate to the court’s decision concerning the parties’ proposed
settlement? The court concluded that the additional details that the directors agreed in a
41-8A. A QUESTION OF ETHICS—Purchase of stock
(a) The shareholders argued that Topps’s failure to disclose certain facts about
Eisner’s offer and Topps’s deal with Upper Deck would affect the vote. In particular, Topps’
management’s failure to reveal the details of their negotiations with Eisner and Upper Deck, and
(b) The court concluded that an injunction against “the procession of the Eisner
Merger vote should issue until such time as: (1) the Topps board discloses several material
facts . . . regarding Eisner’s assurances that he would retain existing management after the
Merger; and (2) Upper Deck is [allowed to] (a) publicly [comment] on its negotiations with Topps;
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ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
41–9A . Mergers and acquisitions
(a) If Artel acquires the stocks and assets of Fox Express, a merger will take place.
Artel will be the surviving corporation, and Fox Express will disappear as a corporation. Title to
(b) If Artel and Fox Express combine so that both corporations cease to exist and a
new corporation, A&F Enterprises, is formed, a consolidation will take place. In that case, title to