Asset or share purchase

1
Asset or share purchase
The corporate entity
Share purchase
Asset purchase
2
Merger
Ordinary merger
target
acquirer
Sub shares
Target
Subsidiary
Acquirer
Triangular merger
3
Benefits of takeovers

• Horizontal economies of scale
• Scope economies of production
• Vertical integration
• Restructuring and agency costs
• Replacing managers
• Managerial discipline management buyouts

4
Costs of takeovers

• Acquirer shareholders
• Target shareholders
• Special problems of tender offers
• Target stakeholders
• Employees
• Creditors
• Other social costs

5
Takeover defenses

• Shareholder approved
• Board control
• Second-step transactions
• Recaps
• Board approved
• Bylaw provisions
• Stock repurchases
• Acquisitions
• Poison pills

6
Takeover defenses justifications

• Information asymmetry
• Coordination costs Prisoners dilemma
• Auction
• Common value information
• Private value synergy
• Bidding increases price, reduces takeovers
• Limits of deal protection
• Protecting managers

7
Evaluating takeover defenses

• The Ruback formula Market value of firm Value
  under current management (Probability of
  control change x Change in value from control
  change).

8
Coercive bids (Unocal example)

• Value 60
• Tender offer 54 (Mesa) or 72 (Unocal)
• Accept this or others will. If they do, you get
  ?
• 35 diluted value of leveraged firm (Unocal)
• And therefore end up with blended value
• 46 (Unocal)
• Alternatively tender some to Unocal, some to
  Mesa

9
Poison pills
Dead-hand redeem by continuing directors No
hand no redemption
Flip-in
Flip-over
Merged co.
Bidder stock
Target shs
Target
Target
target
Bidder
Bidder
Former bidder shs

• 1. Purchase or t.o. trigger
• Target issues rights to buy
• 1/100th share preferred/common
• share
• 2. Merger Target shareholders
• buy Bidder shares for 50 off
• So T shareholders own more of
• merged company

Bidder
1. Target issues rights to buy shares and debt 2.
Purchase trigger Target shareholders buy Target
common for 50 off 3, So Bidder shares in Target
are diluted.
10
The Takeover Defense Landscape

• Unocal analysis
• Omnicare
• Carmody

• General fiduciary
• Analysis
• Van Gorkom
• Cinerama

• Strategic merger
• Time/Omnicare

• Sale of control
• Revlon
• QVC

• Statutory
• invalidity
• Quickturn

• Impeding shareholder
• vote
• Blasius
• Schnell

11
The law of takeover defenses

• The corporate contract
• Unocal and the business judgment rule
• Structural limitations
• Unregulable defenses

12
Shareholder bylaw issue

• Bylaws vs. articles
• Delaware 141 power over bylaws in directors
  subject to articles or statute
• Delaware 109 shareholders can make bylaws
  subject to law (? 141?)
• Can directors amend shareholder bylaws?
• Why shouldnt shareholders control bylaws?
• Conflicts in shareholder voting
• Decision-making problems
• Voting issues confusion, drafting, agenda
  control
• Related issues
• Can the articles limit bylaws
• Unisuper can the board self-bind?
• Federal law and 14a-8

13
Takeover issues

• Antitrust and takeover law
• Management buyouts management theft?
• Auctions and takeover defenses
• Qwest/Verizon/MCI auction and the 4.00 premium
• ATT/BellSouth delusional synergy?
• Hedge funds
• Short-termism
• The answer to takeover regulation?
• Vote-buying? Mylan/King Legg Mason/Qwest/MCI
• Unisuper can the board limit its power to defend?

14
Vote-buying by hedge funds
Sale of Mylan shares
Perry
Retention of vote
Mylan (bidder) Icahn
King (target)
15
Relation to other topics

• Efficient markets
• State competition
• Corporate governance
• Corporate social responsibility
• Fiduciary duties and compensation
• Securities disclosure
• Fraud remedies
• Insider trading
• Comparative corporate governance
• Enron and SOX
• Media and corporate governance