Summary: M&a2 Class Notes

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• Concepts

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• Difference between merger and consolidation

  Merger

  A – B = A or B (depending who is the target and who is the acquiror)

  Consolidation

  A + B = C (completely different new company)

• What conditions must be met for a merger to be entered without stockholder approval?

  
  

  • Certificate of incorporation will not be changed
  • Stock outstanding before remains outstanding
  • additional shares do not exceed 20% of shares after merger is complete
  • note this only applies to survivor, non-survivor will have change to certificate of incorporation so its approval will be needed

• Types of domestic non-stock corporations

  Cooperatives, Mutuals, some banks

• Procedure of a share exchange

  
  

  1. Corp forms sub;
  2. Exchanges shares of new sub for its outstanding stock – 
  3. Shareholders become shareholders of new sub – (parent becomes sub of newco) – way to set up a new holdco – may trigger dissent rights and requires shareholder vote

• Fill or kill provision: 

  Acquirer sometimes may want to waive the collar and avoid the walk-away provision (a Fill or kill option) and close the deal. The purchaser agrees to issue the full complement of shares required by the floating ratio.

• Business Judgment Rule: 

  A regulation that helps to make sure a corporation's board of directors is protected from misleading allegations about the way it conducts business. Unless it is apparent that the board of directors has blatantly violated some major rule of conduct, the courts will not review or question its decisions or dealings.

• Staggered board of directors or classified board: 

  is a prominent practice in US corporate law governing the board of directors of a company, corporation, or other organization in which only a fraction (often one third) of the members of the board of directors is elected each time instead of in mass (where all directors have one-year terms). Each group of directors falls within a specified "class"—e.g., Class I, Class II, etc.—hence the use of the term "classified" board.

• Bank merger act: 

  applies to merger of two banks (not BHC) regulatory agencies with jurisdiction over surviving bank is the one that approves application

  Covers transfers of deposits (branch sale) agency that regulates acquirer will be the one who approves – separate approval may be required from chartering authority to establish new branches.

• Offering stock for purchase: 

  these have a variable purchase price.

  
  

  -What exchange ratio will be is one of the biggest issue – as buyer, prefer fixed exchange ratio, as target prefer floating exchange ratio (sets min and max with floating in middle.)

  
  

  -Floating exchange ratio gives people ability to manipulate stock – so buyer wants to avoid this.

  
  

  -With fixed exchange ratio, typically selling company’s price will go up and will stay there until closed

• VWAP (volume weighted average price) concept:– 

  to avoid risks of relying on a price on a specific day.

  
  

  Typically FDIC is the first regulator to act. Technically approves the bank acquisition, then FED, then state regulator last.