M and A

Arthur S. Rodrigues. Mergers & Acquisitions Outline. Winter/2012.
Hollinger Inc. v. Hollinger Intl., Inc. (Del. Ch.

2004, Strine, p. 74) ............................................ 11
Table of Contents
Chapter 1 – Overview and The Time Warner Final test (check all): ..................................... 11
Transaction: A Case Study...................................... 3 Chapter 5 – Appraisal Rights – Procedural
Chapter 2 – Structures, Voting, and Appraisal Requirements and Determining Fair Value .......... 11
Rights ...................................................................... 4 Procedure:.......................................................... 12
NYSE Rule 312: .................................................. 4 Cavalier Oil Corp. v. Harnett (Del. 1989, Walsh,
Section 203: ......................................................... 4 p. 189)................................................................ 12
Transaction Forms and Voting Rights ................ 5 Final successor liability: ................................ 12
Statutory Mergers ............................................ 5 Chapter 6 – Kohler Co.: A Case Study (Valuation)

............................................................................... 12
Short-Form Merger .......................................... 6
Delaware Block Method: .................................. 12
Triangular Merger............................................ 6
DGCL 262(h): ................................................... 12
Asset Acquisition ............................................. 6
Enterprise Market Value: .................................. 13
Stock Acquisition ............................................ 6
Comparable Company Analysis: ....................... 13
Tender Offer & Two-Stage Acquisition .......... 7
Precedent Transaction Analysis: ....................... 13
Mergers v. Asset Acquisitions ......................... 7
Weighted Average Cost of Capital (WACC) .... 13
Merger v. Stock Acquisition ............................ 7
Discounted Cash Flow ...................................... 14
Stock Exchange rules (NYSE Rules) .............. 8
Notes on valuation:............................................ 15
Appraisal Rights .............................................. 8
Chapter 7 – Issuance of Shares, Federal Proxy
Appraisal rights under short-form mergers: .... 9
Rules, Rule 10b-5 and Disclosure ......................... 15
Chapter 3 – Structures, Voting and Appraisal Rights
Exemptions:....................................................... 15
............................................................................... 10
Proxy and other rules: ....................................... 15
Chapter 4 – Meaning of “Substantially All,” De
Facto Merger Doctrine and Successor Liability ... 10 Basic Incorporated v. Levinson (1988, p. 260) . 16
Long-tail claims: ............................................... 10 NYSE Listed Company Manual (p. 267) .......... 16
DGCL § 281(a) procedures for liquidation: ...... 10 Chapter 8 – Federal and State Tender Offer
Regulation ............................................................. 16
Liquidation safe harbor: .................................... 10
Schedule 13D ................................................. 16
Gimbel v. the Signal Companies, Inc. (Del. Ch.
1974, Quillen, p. 65).......................................... 10 Schedule 13E-4 .............................................. 16
Gimbel test:.................................................... 10 Schedule 14D-9 (ten business days after raider)

....................................................................... 16
Katz v. Bregman (Del. Ch. 1981, Marvel, p. 72)
........................................................................... 11 Form S-4 (exchange offer: registration of
shares, distributed no later than 20 days) ...... 16
1
Schedule 14D (filed in ten days before contact) Chapter 14 – Introduction to Takeover Defenses
....................................................................... 16 (POISON PILL) .................................................... 26
Schedule TO (cash offer: upon the Shareholder Rights Plan: Poison Pill (p. 542). .. 26
commencement of the TO) ............................ 16 Chapter 15 – Enhanced Scrutiny........................... 27
Rule 14d-10 (SEC’s best price rule): ................ 17 Final Conclusion about Revlon duties: ............. 27
Chapter 10 – Tax and Accounting Considerations 17 Comparative Between Netsmart, Lear and Topps
Conclusion class ................................................ 17 ........................................................................... 28
Taxable Transactions: ....................................... 18 Revlon, Inc. v. MacAndrews & Forbes Holdings,
Section 338 Election: ........................................ 19 Inc. (Del. 1985, Moore, p. 550) ......................... 30
Section 338(h)(10) Election: ............................. 19 Lock-Up Options: .......................................... 31
Tax-Free Transactions: ...................................... 20 Paramount Communications, Inc. v. Time, Inc.

(Del. 1989, p. 576) ............................................ 31
Chapter 11 – The CoMark LBO: A Case Study ... 22
Paramount Communications, Inc. v. QVC
Chapter 12 – Antitrust Considerations .................. 23 Network, Inc. (Del. 1994, p. 588) ..................... 31
From the Airgas 14D-9: .................................... 23 Chapter 16 – Enhanced Scrutiny........................... 32
Premerger Notification Program ....................... 23 Final notes about Unocal / Unitrin .................... 32
Who should report: ........................................ 23 Schedule 14D-9 of Airgas, Inc. ......................... 33
A. Size of the transaction Test: ................... 23 In re Airgas Inc. Shareholder Litigation (Del. Ch.
B. Acquiring and Acquired 2011) (by Chandler) .......................................... 33
Persons/Acquired Entity ............................. 23 Chapter 17 – Enhanced Scrutiny (cont.) ............... 35
C. Size of Person Test................................ 24 In re Netsmart Technologies, Inc. Shareholders
D. Notification thresholds ......................... 24 Litigation (Del. Ch. 2007) (by Strine) ............... 35
E. Exempt Transactions ........................... 24 In Re Smurfit-Stone Contained Corp. Shareholder
V. The Waiting Period ................................... 24 Litigation (Del. Chancery 2011) ....................... 37
VI. Review of the Form ................................. 24 Chapter 18 – Enhanced Scrutiny (cont.) ............... 38
IX. Agency Action ......................................... 24 In re The Topps Company Shareholders

Litigation (Del. Ch. 2007, p. 651) ..................... 38
X. Failure to File ............................................ 25
In re Lear Corp. S’ holder Litigation (Del. Chan.
Herfindal-Hirschmann Index (HHI): ............. 25
2007).................................................................. 38
Chapter 13 – Business Judgment Rule and
Chapter 19 – Enhanced Scrutiny (cont.) ............... 39
Enhanced Scrutiny ................................................ 25
Omnicare, Inc. v. NCS Healthcare, Inc. (Del.
Smith v. Van Gorkom (Del. 1985, p. 455) ........ 25
2003, p. 620)...................................................... 39
Unocal Corporation v. Mesa Petroleum Co. (Del.
In Re Openlane, Inc. Shareholders Litigation
1985, p. 519)...................................................... 26
(Del. Chancery 2011) ........................................ 40
Preliminary injunction standard: ....................... 40
2
Unocal when there is a risk of entrenchment. 41 Chapter 27 – The Rohm and Haas Acquisition – a
Omnicare when the board has no interest. ..... 41 Case Study ............................................................ 51
Lyondell Chemical Co. v. Ryan (Del. 2009)..... 42

Chapter 20 – Interference with the Shareholder
Franchise ............................................................... 42
Blasius Industries, Inc. v. Atlas Corporation (Del. CHAPTER 1 – OVERVIEW AND THE TIME
Ch., 1988, p. 576 supp) ..................................... 42 WARNER TRANSACTION: A CASE STUDY
MM Companies, Inc. v. Liquid Audio (Del.2006) Policy Concerns (p. 28):
........................................................................... 43
1. Availability of Appraisal Rights
Mercier v. Inter-Tel (Delaware), Inc. (Del. Ch. 2. Perfecting the Right to an Appraisal
2007) (Strine) .................................................... 44 3. Valuation Issues
Chapter 22 – Freeze-Out Transactions ................. 45 4. Exclusivity of the Appraisal Remedy
5. Goal of appraisal is protect minority from
Final Note About BJR v. EF ............................. 45
wrongful conduct
In re Pure Recourses, Inc., Shareholders
Litigation (Del. Ch. 2002, p. 805 supp, Strine) . 45 Importance of Fiduciary Duty Law (p. 29):
Weinberger v. UOP, Inc. (Del. 1983, Moore, p. 1. Duty of Care: shareholder primacy model
159).................................................................... 46 2. Duty of Loyalty: Conflict of Interest,
BL Rule, Cash-out mergers: .......................... 46 influence of Sarbanes-Oxley Act
Duty of candor: .............................................. 46 CN: Times case discussed synergies in a business.
Entire fairness: ............................................... 46 Also the dilemma between buy v. build. (1) Internal
need for growth; (2) industry dynamics (like
How to avoid Weinberger (entire fairness)? ..... 47
making a movie and selling to different markets);
Structuring a Siliconix/Pure Resources (3) deregulation. Also pay attention to debt
Transaction: ....................................................... 47 capacity.
In re CNX Gas Corporation Shareholders
Time was acquired in the economic sense, but not
Litigation (Del. Ch. 2010, Laster) ..................... 48
in the legal sense. She was going to be the
When BJR will apply to a short-form merger: controller. Paramount wanted the licenses from the
....................................................................... 48 FCC and towns’ cables.
Chapter 25 – The Acquisition Agreement ............ 48
What was covered:
Chapter 26 – The Acquisition Agreement (cont.)
and Due Diligence................................................. 49 1. What drives merger activity
a. Economies of scope
MAC & MAE clauses. ...................................... 49
b. Spreading cost
In re IBP, Inc. Shareholders Litigation (Del. Ch. c. Necessity of business
2001, Strine, p. 336) .......................................... 49 d. Sales force, distribution channels
Indemnification Provisions ............................... 51 e. Agency costs
f. Government problems
3
g. Industry shocks (like de- the issuance of the common stock or

regulation) of securities convertible or
h. Monopolies exercisable for common stock.
2. Structure 2. No shareholder approval:
a. Voting a. Public offering for cash;
b. Economics b. Bona fide private financing.
3. Regulatory concerns
What’s the quorum? 50% of the votes, provided that
4. Fiduciary duties
the total number of votes represents over 50% in
a. Who should decide? What’s the
interest of all securities entitled to vote.
policy arguments for both side?
*** Appraisal rights: there is no appraisal rights for

sales of assets or an amendment to the company’s
certificate of incorporation.
CHAPTER 2 – STRUCTURES, VOTING, AND
APPRAISAL RIGHTS Market Out Exception:
Under Federal Proxy Rules are companies that: 1. No appraisal for listed companies and to
1. Reporting companies; and companies that have more than 2000
2. More than 500 shareholders and assets of shareholders.
$10m. of more. 2. No appraisal for surviving corporation when
a merger is effected without the vote of the
NYSE Rule 312: shareholders.
Shareholder approval is a prerequisite to listing in a. Restoring the rights:
four situations (p. 43): i. What matters is the type of
consideration (not stock).
1. Shareholder approval is required prior to the
issuance of common stock, or of securities ***
convertible into or exercisable for common
stock, in any transaction or series of related Section 203:
transactions if: (p. 399 of the supplement) Prevents a business
a. The common stock has, or will have combination when an interested stockholder for a
upon issuance, voting power equal to period of three years following the time such person
or in excess of 20% of the voting became an interested stockholder, unless:
power outstanding before the 1. Prior to such time the board of directors
issuance of such stock or of approved either the business combination
securities convertible into or or the transaction which resulted in the
exercisable for common stock; or stockholder becoming an interested
b. The number of shares of common stockholder; or
stock to be issued is, or will be upon 2. Upon consummation which resulted in the
issuance, equal to or in excess of stockholder becoming an interested
20% of the number of shares of stockholder, the interested stockholder
common stock outstanding before owned at least 85% of the voting stock of
4
the corporation outstanding at the time the 1. The owner of 15% or more of the
transaction commenced, excluding for outstanding voting stock of the corporation,
purposes of determining the voting stock or
outstanding those shares owner 2. Is an affiliate or associate of the corporation
a. By persons who are directors and and was the owner of 15% or more of the
also officers and outstanding voting stock of the corporation
b. Employee stock plans in which at any time within the three-year period
employee in which employee immediately prior to the date on which it is
participants do not have the right to sought to be determined whether such
determine confidentially whether person is an interested stockholder; and
shares held subject to the plan will 3. The affiliates and associates of such person.
be tendered in a tender or exchange
offer; or ***
3. At or subsequent to such time the business Transaction Forms and Voting Rights
combination is approved by the board of
directors and authorized at an annual or Statutory Mergers
special meeting of stockholders, and not by 1. DGCL § 251(b)
written consent, by the affirmative vote of at a. A Corp and T Corp boards adopt a
least 66 2/3% (=2/3) of the outstanding resolution approving the merger
voting stock which is not owned by the agreement
interested stockholder (absolute number, all b. A Corp’s charter may be amended, §
outstanding shares vote). 251(b)(3)
2. DGCL § 251(c)
A Delaware corporation may elect not to be covered a. Vote by AC-SH and TC-SH:
by Section 203 in its original certification of majority of shares entitled to vote
incorporation or through an amendment to its b. AC-SH do not vote if:
certificate of incorporation or bylaws approved by i. A Corp stock issued is 20%
its stockholders. An amendment electing not to be or less of A Corp shares
governed by it is not effective until 12 months after outstanding (which includes
the adoption of such amendment and does not apply cases in which consideration
to any business combination between a Delaware is cash)
corporation and any person who became an ii. No change to certification of
interested stockholder of such corporation on or incorporation of A Corp; and
prior to such adoption. iii. Each share of stock of A
You can get away: (1) opt-out in the charter; (2) Corp continues in place as n
amend it (wait 12 months and you can’t amend after identical shares after the
you become an interest shareholder); (3) not public merger is effective.
held; (4) accidently cross the trigger. 3. DGCL §251(c)
a. File merger agreement or certificate
Interested stockholder: of merger with secretary of state
b. Merger effective at time specified in
certificate of merger
5
c. Creditor claims are assumed by A corp; however A Corp board approval is

Corp, DGCL § 259(a) (T Corp required for issuance of stock or use of other
shares are cancelled and T Corp is A Corp resources (e.g., cash) to effect the
extinguished) transaction (DGCL § 141(a), § 161)
6. No vote of AC-SH on merger under state
Short-Form Merger law
1. DGCL §253 a. In a merger, only the stockholders of
a. Shortened procedures the constituent corporations are
b. Merger between parents corporation entitled to vote
(A Corp) and its 90% or more owned b. Shareholders who are entitled to vote
subsidiary (T Corp) are TC-SH and A Corp, the sole
c. A Corp board must approve the stockholder of A Sub
terms of the merger, including the c. A Corp board votes all shares of A
consideration to be paid to the Sub on behalf of A Corp
minority shareholders of T Corp; no d. Use of A Sub means T Corp
board action at the T Corp level is liabilities not assumed by A Corp
required;
d. Upstream merger: merger of the Asset Acquisition
subsidiary (T Corp) into the parent; 1. A Corp and T Corp boards negotiate the deal
no need of approval of A Corp and set forth the terms of the transaction in
shareholders; an asset purchase agreement
e. Downstream merger: merger of A 2. Voting:
Corp into the subsidiary (T Corp), a. TC-SH vote when “all or
approval of parent’s stockholders substantially all” of T Corp’s assets
required, parent is not the surviving are sold (DGCL § 271(a))
corporation. b. Generally, no vote for AC-SH, but
f. Remember: The 20% is a pre- AC-SH may vote under stock
transaction approach. Under the exchange rules if sufficient shares
post-consummation basis the need to be issued
percentage is 16.7% to trigger a vote. 3. Remaining assets, including cash from asset
sale, are distributed to TC-SH following
Triangular Merger dissolution of T Corp
1. Three parties: A Corp, A Sub and T Corp 4. A Corp must specifically assume T Corp’s
2. A Corp incorporates a new subsidiary (A liabilities
Sub) 5. If A Corp does not want to subject itself to
3. A Corp and T Corp merge the liabilities of T Corp assumed in the
4. Approval of the boards of A Sub and T transaction, A Corp could form A Sub and
Corp, the constituent corporations (DGCL § have A Sub acquire T Corp’s assets and
251(b)) assume certain of T Corp’s liabilities
5. Approval of A Corp board not required for
consummation of merger under DGCL § Stock Acquisition
251(b) because A Corp is not a constituent 1. Cash-for-stock and stock-for-stock
6
2. Neither AC-SH nor TC-SH have any voting a. Speed with which A Corp can
rights acquire control of T Corp
3. Cash-for-stock post-transaction: b. Turn partially-owned T Corp into
a. A Corp is the new owner of T Corp wholly-owned subsidiary
stock;
b. T Corp is either a wholly-owned or Mergers v. Asset Acquisitions
partially-owned subsidiary of A 1. Both mergers and assets sales require
Corp; and approval by the T Corp board
c. TC-SH have cash (though TC-SH 2. Merger takes effect when the certificate of
holdouts still own stock in T Corp) merger is filed with the secretary of state
4. Stock-for-stock post-transaction: a. Events take place by operation of
a. A Corp is the new owner of T Corp law
stock; 3. Statutory sale of assets is more complicated
b. T Corp is either a wholly-owned or because questions resolved by statute in
partially-owned subsidiary of A merger context must be resolved through
Corp; and acquisition agreement
c. TC-SH are new stockholders of A 4. When merger becomes effective, the
Corp, along with AC-SH (though separate existence of the parties comes to
TC-SH holdouts still own stock in T and end
Corp) 5. In an asset sale, the target company remains
at least after the asset sale is completed
Tender Offer & Two-Stage Acquisition 6. In a merger, title to all property owned by
1. A Corp offers to purchase T Corp stock each party is automatically vested in the
2. May bypass T Corp board (T Corp may, but surviving corporation
does have to vote to approve the transaction) 7. In an asset sale, transaction costs are higher
3. No TC-SH vote (documents must be prepared with respect to
4. If TC-SH accept offer, A Corp purchases every asset being sold and those documents
shares of T Corp for cash or stock must be filed with every applicable agency)\
5. May follow with a back-end merger 8. In a merger, consideration passes to non-
6. Two steps: dissenting stockholder at closing
a. Stock acquisition 9. In an asset sale, the process of distributing
b. Freeze-out (squeeze-out) merger the consideration is through liquidation
7. A Corp acquires a controlling interest in T (wording: T Corp is dissolved)
Corp by acquiring stock directly from TC-
SH in a stock acquisition Merger v. Stock Acquisition
8. A Corp then drops down A Sub and mergers 1. Merger require approval by the T Corp
T Corp and A Sub board
9. Stockholders of T Corp (A Corp and TC-SH 2. T Corp board approval is not required in
holdouts) and A Sub (A Corp) vote to stock acquisitions
approve the merger 3. When a merger becomes effective, the
10. Reasons: separate existence of all constituent
7
corporations, with the exception of the over 50% in interest of all securities entitled
surviving, comes to an end to vote.
4. In stock acquisition, T Corp remains in 6. DGCL v. NYSE Rules:
existence a. DGCL requires AC-SH vote if:
5. Merger: assumes all liabilities i. A Corp is a constituent
6. Stock acquisition: stays at T Corp corporation and
ii. A Corp stock, representing
Stock Exchange rules (NYSE Rules) more than 20% of the
1. Each SRO has its own requirements number of shares of A Corp,
2. Penalties: is issued in connection with
a. Suspension of trading the transaction (DGCL §§
b. De-listing 251(c) and 251(f))
3. NYSE Listed Company manual § 312.03(c): b. NYSE Rules require AC-SH vote if
“Shareholder approval is required prior to A Corp stock, representing at least
the issuance of common stock, or of
20% of the voting power or
securities convertible into or exercisable for number of shares of A Corp, is
common stock, in any transaction or series issued in connection with
of related transactions if: transaction.
a. The common stock has, or will have c. DGCL requires the approval of
upon issuance, voting power equal holders of 50% of all stock
to or in excess of 20 percent of the outstanding and entitled to vote (§
voting power of outstanding before 251(c));
the issuance of such stock or of d. NYSE Rules require majority vote of
securities convertible into or shares represented or present at the
exercisable for common stock; or stockholder meeting (assuming at
b. The number of shares of common least 50% of a corporation’s shares
stock to be issued is, or will be upon are voted)
issuance, equal to or in excess of 20
percent of the number of shares of Appraisal Rights
common stock outstanding before 1. Minority shareholders can’t stop the merger
the issuance of the common stock or 2. However, DGCL §262 give dissenters who
of securities convertible into or vote against the transaction or those who
exercisable for common stock. abstain the right to challenge the price
4. However, shareholder approval will not be being paid for their shares (i.e. appraisal or
required for any such issuance involving: dissenters’ rights) under certain
a. Any public offering for cash; circumstances;
b. Any bona fide private financing. 3. The corporation will have to buy their shares
5. Quórum: the minimum vote which will at a judicially determined fair market value
constitute shareholder approval is defined as in cash
approval by a majority of votes cast 4. Only mergers: no right under sale of assets
provided that the total vote cast represents
Process:
8
1. Is the transaction in question a merger (§ 2. DGCL § 262(b)(3): In the event all of the
262(b))? If no, no appraisal rights. stock of a subsidiary Delaware corporation
2. If yes: Is the SH seeking appraisal rights a party to a merger effected under § 253 of
SH in one of the constituent corporations (A this title is not owned by the parent
Corp or T Corp in a direct long-form corporation immediately prior to the merger,
merger; A Sub or T Corp in a triangular appraisal rights shall be available for the
merger (§ 262(b))? If no, no appraisal shares of the subsidiary Delaware
rights. corporation.
3. If yes: Is the SH seeking appraisal rights a
SH in the surviving corporation (A Corp) Assumptions for the summaries (check summary for
that does not have state law voting rights transactions):
with respect to the transaction under the 1. A Corp has sufficient authorized and
small-scale merger exception (§ 251(f))? If unissued shares to effectuate the transaction
no, no appraisal rights. in question;
4. If yes: Is the SH seeking appraisal rights a 2. SER = stock exchange rules, consideration
SH in a public company (the “market out” of more than 20% means 20% or more and
exception) (§ 262(b)(1))? If no, affirmative consideration of 20% or less means less than
appraisal rights. 20% with respect to SER.
5. If yes: no appraisal rights, unless restored
per § 262(b)(2), whether the consideration Appraisal Rights Summary: Short-Form
required to be received anything other than Mergers:
one of the following:
1. Even though they have no voting rights
a. Stock of the surviving company
with respect to the transaction, TC-SH
b. Shares of stock of any public
(minority shareholders) have appraisal
company
rights
c. Cash in lieu of fraction shares
2. There is no “market-out” exception
d. Any combination of the above, §
3. AC-SH have no appraisal rights
262(b)(2)
4. Asset Acquisitions: no appraisal rights for
6. If yes: appraisal rights; if no: no
TC-SH or AC-SH
appraisal rights.
5. Stock acquisitions: no appraisal rights for
Appraisal rights under short-form mergers: TC-SH or AC-SH
1. DGCL § 253(d): In the event all of the
***
stock of a subsidiary Delaware corporation
party to a merger effected under this section About Conrail: the case was about a very low
is not owned by the parent corporation productivity company being disputed by different
immediately prior to the merger, the companies. Professor took a look on the debt /
stockholders of the subsidiary Delaware capitalization data. Capitalization = debt + equity.
corporation party to the merger shall have
appraisal rights as set forth in § 262 of this ***
title;
9
CHAPTER 3 – STRUCTURES, VOTING AND received in the liquidating distribution or their pro
APPRAISAL RIGHTS rata share of the claim, whichever is less. Directors
*** of the dissolving corporation will not be liable
personally, however, if the plan of distribution was
formulated properly and the amounts set aside were
CHAPTER 4 – MEANING OF
“reasonable” at the time the plan was made.
“SUBSTANTIALLY ALL,” DE FACTO
MERGER DOCTRINE AND SUCCESSOR Liquidation safe harbor:
LIABILITY As part of the dissolution proceeding, Target Co.
The De Facto doctrine, rejected by Delaware may petition the court to determine the amount and
courts, states that a sale of assets could be form of security that is “reasonably likely to be
converted to a merger to get appraisal rights. In sufficient to provide compensation for claims that
Speiser v. Baker (s. Del. Ch., 1987, p. 113): “As a have not been made known to the corporation or
general matter, those who must shape their conduct that have not risen but that, based on facts known to
to conform to the dictates of statutory law should be the corporation or successor entity, are likely to
able to satisfy such requirements by satisfying the arise or to become known to the corporation or
literal demands of the law rather than being required successor entity within 5 years after the date of
to guess about the nature and extent of some dissolution or such longer period of time as the
broader or different restriction at the risk of an ex Court of Chancery may determine not to exceed 10
post facto determination of error.” It’s a formalistic years after the date of dissolution.” DGCL §
approach: if you fulfill the rules, you get what you 280(c)(3).
wanted.
***
Long-tail claims:
Product liability claims and environmental claims Gimbel v. the Signal Companies, Inc. (Del. Ch.
that arise long after Target Co. has sold all of its 1974, Quillen, p. 65)
assets to Bidder Co. and distributed out the Injunctive relief to prevent the consummation of the
acquisition consideration to Target Co. sale by Signal to Burmah Oil Incorporate of all of
shareholders. the outstanding capital stock of Signal Oil and Gas
Company. The issue is whether an important
DGCL § 281(a) procedures for liquidation: subsidiary sale could be considered substantially all
Delaware § 281(a) requires that Target Co. use the assets. It cannot.
acquisition proceeds from the sale of all its assets to
satisfy all claims known to the corporation at the A transaction out of routine wouldn’t require
time of its dissolution. But it then goes further and shareholder approval per se, only substantial all
requires that a dissolving corporation establish a assets. Signal Oil represents only about 26% of the
plan of distribution that provides for claims ‘that total assets of Signal. While Signal Oil represents
have not been made known, or that have not arisen, 41% of Signals’ total net worth, it produces only
but that, based on facts known to the corporation are about 15% of Signal’s revenues and earnings.
likely to arise or to become known to the
Gimbel test:
corporation within ten years of the date of 1. Quantitatively vital;
dissolution.” If the amount provided is insufficient, 2. Out of ordinary; and
claimants may pursue shareholders for amounts
10
3. Strike and the heart of existence of the This case involves an injunction preventing
corporate existence and purpose. Hollinger International, Inc. from sale of the
Telegraph Group Ltd. (England). The Telegraph
*** Group is one of the most profitable parts of
Katz v. Bregman (Del. Ch. 1981, Marvel, p. 72) International and is its most prestigious asset.
Injunction to enjoy the sale of Canadian assets of After the sale of the Telegraph Group, International
Plant Industries, Inc. to Vulcan Packaging. This therefore will quantitatively retain a sizable
case is tricky. The court found that they shouldn’t percentage of its existing assets and will
dispose, but it’s more related to a fiduciary duty qualitatively remain in the same business line
than to the substantially all assets. (Gimbel test).
Bregman was selling all the unprofitable assets, by Conclusion: after the sale, International will retain
the end of 1980, a significant part was already considerable assets that are capable of generating
disposed. The problem in this case was the substantial free cash flow. It doesn’t matter if the
subsidiary known as Plant National (Quebec) Ltd., asset is the most “prestigious” one. The only thing
which was the “only income facility during the past that matter when “assets to be sold, when
four years.” considered quantitatively and qualitatively, amount
Two companies were competing for that plant to ‘substantially all’ of the corporation’s assets.”
(Vulcan and Universal Drum). They closed the deal
Final test (check all):
with Vulcan, despite “the constantly increasing bids
1) End Result Test: pre-arranged
for the same property being made by Universal.”
transactions to achieve an ultimate result.
The court looked at (1) value of assets (in this case 2) Independence test. If the particular
51%), (2) profit ($5.3m v. a loss of $4.5m.), and (3) transaction is so interdependence that the
income (52.4% pre-tax income). Another relevant legal relations would be fruitless without
point was moving from manufacturing steel drums the completion of the series.
to plastic drum (“radical departure from Plant’s 3) Binding commitment test. We will
historically successful line of business”). aggregate them only IF there is a binding
commitment undertaken from the
Conclusion: inadequate consideration viewed in beginning to complete the series. What is
light of the competing bid. the overall goal.
*** ***
Hollinger Inc. v. Hollinger Intl., Inc. (Del. Ch.

2004, Strine, p. 74) CHAPTER 5 – APPRAISAL RIGHTS –
Check quantitatively and qualitatively. PROCEDURAL REQUIREMENTS AND
DETERMINING FAIR VALUE
“Has the judiciary transmogrified the words Rationales:
‘substantially all’ in § 271 of the Delaware General
Corporation Law into the words ‘approximately 1. Serves as quid pro quo for the loss of
half?’ Short answer: no. shareholders’ right to veto fundamental
corporate changes.
11
2. It serves a liquidity rationale. It allows the 4) Mere continuation of the seller, affiliated
shareholder a “way out” of an investment company. Same family, common ownership.
involuntarily altered by a fundamental 5) Continuance of the enterprise. Found in
corporation change. Cercla, same employees, same assets, going
to be liable.
Procedure:
1. Filing before the date of the shareholder ***
vote a notice to dissent;
2. Later this dissent should be followed up
CHAPTER 6 – KOHLER CO.: A CASE STUDY
with the separate filing of the shareholder’s
(VALUATION)
written demand for payment;
3. Which is filed after the transaction has Delaware Block Method:
received the requisite approval of the 1) value of the company assets; 2) price of stock; 3)
shareholders. value of its earnings; 4) the value of dividends
(almost never used).
***
DGCL 262(h):
Cavalier Oil Corp. v. Harnett (Del. 1989, Walsh,
The Court of Chancery “shall appraise the shares,
p. 189)
determining their fair value exclusive of any
The issue is what is fair value for the shares of a
element of value arising from the accomplishment
closely-held Delaware Court. The plaintiffs lost
or expectation of the merger, together with a fair
their appeal.
rate of interest, if any, to be paid upon the amount
Weinberger: the only remedy for cash-out mergers determined to be the fair value. In determining such
is appraisal. However, this wasn’t applied here. fair value, the Court shall take into account all
relevant factors.”
Valuation should be the value of the corporation
itself, as distinguished from a specific fraction of its To be excluded: only the speculative elements of
shares as they may exist in the hands of a particular value that may arise from the ‘accomplishment
shareholder. The court excluded the minority or expectation’ of the merger are excluded.
discount. It also excluded post-merger events or
Valuation (check the Kohler spreadsheet):
other possible business combinations.
1. The bigger is the WACC, the worse is for
Final successor liability:
the shareholders, because it would discount
1) Buyer expressly assumes liability, then the
their appraisal;
buyer is going to be on the hook (i.e. liable).
2. The bigger is the perpetuity growth rate, the
2) Transaction is considered a de facto merger
better is for shareholders, because they will
 some courts found liability here. Del.
receive more money.
Law doesn’t recognize de facto merger. E.g.
tort happens in NY, from a Del. Company, Theoretically, the Court of Chancery would accept
de facto applies. any valuation technique recognized in the market,
3) Defraud creditors. Successor liability will Weinberger (p. 188). However, in Cavalier Oil, The
attach. Delaware Supreme Court stroke out any minority
12
discount or discount for lack of marketability, so TEV=12k

both discounts found in tab 2 are not permissible.
Sales= 4k
Enterprise Market Value:
EMC + Total Debt – Cash = Total Enterprise Value TEV/Sales=12k/4k=3.0x
(TEV) (for every dollar of sales, the market puts 3 times on
Stock Price * Shares Outstanding = Equity Market the enterprise)
Capitalization (EMC) CN: Beta measures the stock volatility (history of
market crashes).
Comparable Company Analysis:
1. Get TEV; US treasury proxy = Risk-free rate + inflation
2. Get Latest Twelve Months (LTM) Sales, premium.
Ebitda, Net income;
3. Divide the TEV by them (e.g. TEV / LTM Equity Market Risk Premium = EMRP = (Rm-Rf)
Sales);
FCF  EBIT (1-t) + Non-cash (depreciation,
4. Multiple is generated. Do the same for other
amortization) – Capital expenditures – Incremental
companies;
(Increases) in Working Capital
5. Get the mean and the median of the
companies; Terminal Value (year x) = (FCFx + 1 ) / K-g
6. Apply to the target company (e.g. 2.50 is the
multiple of TEV/LTM Sales. LTM Sales for G = growth rate
the target is $4,800. Implied TEV is
FCF = free cash flow
$12,000.
***
Example:
Precedent Transaction Analysis:
A Stock Price $10 Shares O/S 1,000
instead of looking at public traded companies like
THUS: 10 X 1k = 10k = EMV here, you use M&A transactions.
TEV = EMV + Debt – Excess Cash Issue: bankers will sometime pick a specific
multiple. You can’t cherry pick the numbers.
Equity Market Value
***
Total Enterprise Value
(Review Class)
You comparable that to numbers like sales or
EBITDA (proxy as cash flow) or net income. Weighted Average Cost of Capital (WACC)
WACC = (D/V) X Kd + (E/V) X Ke
For example: TEV/ Sales; TEV/EBITDA; TEV/Net
Income.
Company A, Debt 2,250, Cash 250 D = Debt
TEV = 10k + 2250 -250 V = Total Enterprise Value (only debt and equity
here!)
13
Kd Cost of debt Kd=0.054 (5.4%)
E = Equity
Ke Cost of equity Ke=0.045 X 0.9(0.075)
Before you calculate the WACC, you need to know Ke=0.1125 (11,25%)
the Ke and Kd, Cost of debt and Cost of Equity.
Interest on debt is tax deductible.

WACC = (D/V) X Kd + (E/V) X Ke
Kd = Interest rate on debt X (1-T)
WACC = 0.3XKd + 0.7XKe
T = tax rate
WACC=0.3X0.054 + 0.7X0.1125
Rf Risk Free Rate
WACC=0.9495 (9.5%)
Rm-Rf = equity market risk premium
D/V = 30/100 = 30%
B = Beta
E/V= 70/100 = 70%
Ke= Rf + B(Rm-Rf)
To calculate equity: shares outstanding x value = 7
Opportunity cost and deflation is captured on the X 10 = 70m
bond (Rf).
To calculate value: equity + debt = 100m
We also need to know what type of return we need
to expect from a risk asset. The entire expression: ***
Rm-Rf = equity market risk premium. Historical Discounted Cash Flow
market above investment on government security. Enterprise value is the present value of its future
cash flows. That’s why this is so important.
Example:
Target Beta = 0.9 How much cash you can get out of the business. In
other to get the money in some kind of return.
Risk-free rate: 4.5%
If you are the sole owner of the company: all cash
Equity market risk premium: 7.5% you are going to get from the business.
Interest Rate on Debt = 9.0% We also need to assume: in order to achieve the
cash flows, we are going to use somebody’s else
Tax rate at the target: 40% money. Combination of debt and equity. There is a
Capital structure: 30m debt, 7m shares outstanding, cost of money. Equity providers also have a
share price: $10 required return on their money, if they don’t have
an explicit interest.
Steps:
Kd=(0.09) X (1-0.4)
1. Projection of cash flow
14
You don’t have to know this formula (remember, 7. No minority discount!

only WACC is mandatory).
***
Projection period is something between 5 and 10
years. If projections are showing that the company
CHAPTER 7 – ISSUANCE OF SHARES,
will generate more cash, the company will be
FEDERAL PROXY RULES, RULE 10B-5 AND
deemed more valuable. Summary: how much the
DISCLOSURE
company will generate, problem: not knowing the
future. Exemptions:
1. Private placements (i.e. nonpublic offerings
2. Terminal value
for purposes of § 4(2) in which the proposed
We don’t assume that the company will cease to offer and sale was limited to those who
exist. We assume that this value is: (1) company is could fend for themselves and had access to
going to be sold (e.g. they going to be sold in 6x the kind of information which registration
EBITDA, you need to do precedent transaction would disclose.)
analysis); or (2) company continues going to grow 2. Reg D, Rule 506 (unlimited accredited and
in perpetuity (rate of inflation, e.g.). Summary: how 35 sophisticated nonaccredited purchasers).
much money you will get at the end, problem: not
Proxy and other rules:
knowing this value.
1. Regulation 14A, under authority of § 14(a).
3. Discount Cash Flows and the Terminal 2. File Schedule 14A.
Value back to the present 3. Rule 14a-9: liability for false and/or
misleading disclosures in the proxy
Dollar today is worth more from a year from now. statement is imposed by the terms of Rule
Time, value, and opportunity cost. 14a-9, which bears a strong family
resemblance to the terms of Rule 10b-5, but
***
extends only to materially misleading
Notes on valuation: disclosures contained in a proxy statement
1. Control premium is added only on filed pursuant to Reg. 14A.
comparable company analysis. 4. Form 8-K disclosure. Real time disclosure.
2. Comparable company analysis is the market Item 101: company is required to disclose
place price. It doesn’t include control price. that it has entered into a material definitive
Add some control: 20%. agreement not made in the ordinary course
3. Precedent transaction analysis: the control of business. No duty to disclose under Rule
premium is already added to the price 10b-5.
(someone bought the entire business). 5. A proxy statement can be common within
4. On Discounted Cash Flow, the amount of two firms.
money is available to a single owner, so it
FINRA Rule 2290: Fairness opinions (p. 259).
also assumes control.
Financial Industry Regulatory Authority. Disclosure
5. Cavaliere case: do not add minority status
of the fact that the compensation that a member
or illiquidity premium.
firm will receive for rendering a fairness opinion is
6. Pay attention on the assumptions.
15
contingent upon successful completion of the M&A NYSE Listed Company Manual (p. 267)
transaction. 202.05: a listed company is expected to release
quickly to the public any news or information which
*** might reasonably be expected to materially affect
Basic Incorporated v. Levinson (1988, p. 260) the market for its securities and should also act
The issue here is materiality. Basic several times promptly to dispel unfounded rumors which result
denied it was under merger negotiations. in unusual market activity or price variations.
Shareholders claim they sold their shares in this 202.01: if it’s confidential, keep it confidential.
depressed value. The merger was announced and Extreme care must be used in order to keep the
they sued. They won, because the fact that the information on a confidential basis. Whenever
merger was pending was material. everybody knows: disclose.
In TSC Industries, the materiality requirement there ***
must be a substantial likelihood that the disclosure
of the omitted fact would have been viewed by the
reasonable investor as having significantly altered CHAPTER 8 – FEDERAL AND STATE
the ‘total mix’ of information made available. TENDER OFFER REGULATION
Whether the reasonable investor would consider the
Schedule 13D
omitted information significant.
Schedule 13E-4
Remember: no agreement in principle theory. Also
rejected is the proposition that information becomes Schedule 14D-9 (ten business days after raider)
material by virtue of a public statement denying it.
Form S-4 (exchange offer: registration of shares,
The definitive test is the probability & magnitude distributed no later than 20 days)
test.
Schedule 14D (filed in ten days before contact)
“[I]n order to assess the probability that the event
will occur, a factfinder will need to look to indicia Schedule TO (cash offer: upon the
of interest in the transaction at the highest corporate commencement of the TO)
levels. Without attempting to catalog all such
possible factors, we note by way of examples that
1. Williams Act changed the Ex. Act, including
(1) board resolutions, (2) instructions to investment
§ 13(d) that requires the filing of a
bankers, and (3) actual negotiations between
disclosure document with the SEC whenever
principals or their intermediaries may serve as
any person acquired more than 5% to file a
indicia of interest. To assess the magnitude of the
Schedule 13D.
transactions to the issuer of the securities allegedly
2. Rule 13e-1: issuers that propose to engage in
manipulated, a factfinder will need to consider such
repurchases of their shares during the course
facts as the (1) size of the two corporate entities and
of a third party’s tender offer are required to
of (2) potential premiums over market value.”
file a disclosure document with the SEC.
*** Where the issuer proposes a self-tender, the
issuer must file Schedule 13E-4.
16
3. Schedule 14D-9: Target’s answer to a TO. 2. Exempted from the best-price rules any
Within ten days of the commencement of money paid under employment
the tender offer. compensation, severance, or other benefit
4. Rule 13e-3: issuer must file disclosures in arrangements to shareholders of the target,
the case of a going private transaction. such as employees and directors, if the
Involves a controlling shareholder who money is strictly for performance of service
proposes to take the company private by or under non-compete agreements and is not
purchasing all of the publicly held shares. based on the number of securities the
5. Regulation 14D: Williams Act disclosures: shareholder tenders; and
(1) the source of its funds to finance the cash 3. Provided a safe harbor so that arrangements
purchase of Target shares; and (2) Bidder’s approved by independent directors of either
plans for Target Co. in the event of Bidder the acquirer or target will not be prohibited
gains control over Target Co. as a result of by the rules.
its tender offer (p. 375).
6. Section 14(e) prohibits material If there is any change to the tender offer, it’s going
misstatements, omissions, and fraudulent to have an extension of it. 5 days if this change is
practices in connection with tender offers not price, 10 days if it’s price, and 20 days if the
regardless of whether the Target Co. is a SEC thinks it was a material deficiency.
1934 Act reporting company. The tender offer must be open for at least twenty
7. These are in the supplement. days.
*** ***
Rule 14d-10 (SEC’s best price rule): Chapter 9 – The Acquisition of Consolidated Rail
The rule requires the tender offeror to pay to all Corporation: A Case Study
security holders the highest price paid to any
security holder in the course of the Bidder’s tender
offer. (Remember: a tender can be completed in CHAPTER 10 – TAX AND ACCOUNTING
20 business days, a statutory merger subject to the CONSIDERATIONS
SEC’s proxy rules generally will take at least three (Check the tax file)
to four months to complete).
Conclusion class
Three-pronged approach: A Corp: cash for assets deal. Good under tax
implications.
1. Best-price rules apply only to the price paid
for securities tendered and not to funds paid T Corp: Merger.
to shareholders for other aspects of the
How to reconcile both?
acquisition, such as compensatory,
severance, or other employee benefit Difference between goodwill: financial (not good)
arrangements, as long as these and tax purposes (good).
arrangements were not related to
purchasing the securities; How to reconcile? Asset deal v. reverse subsidiary
merger and it’s comfortable with stock.
17
Everything will be subject to negotiation. NOL 2. Seller’s basis in property received in

transfer is only valuable if companies got NOLs. exchange therefore is equal to basis in
Double tax is a problem If the target corporation property exchanged (“substituted basis”);
doesn’t have NOLs to offset that level of tax. In
other words: NOLs can offset. Taxable Transactions:
1. Asset Purchase (two levels of tax, T Corp on
If T Corp does not have NOLs, no one wants to pay the ordinary gain from selling assets; TC-SH
dual taxes. are taxed on the gain from liquidating T
Corp)
Reverse subsidiary and stock purchase: both most a. Good for A Corp: buying T Corp
common. assets results in “step-up” in tax
*** basis of the assets purchased to the
sum of the purchase price and the
CN: Step up basis: you can increase the basis for tax assumed liabilities (going forward,
purchases. With this method you can depreciate there are higher depreciation);
higher rate your asset and then lower tax liability. i. Higher future
depreciation/amortization
Goodwill: how much you’re paying above the
deductions for A Corp
market value of both tangile and intangible assets.
ii. Less future income tax
Recognized: taxable event. b. T Corp NOLs can be used to offset
gain at T Corp’s level
Realized: transaction is closed and the sale or c. However, if Corp has valuable tax
exchange has occurred. attributes such as NOL
carryforwards, these are lost if assets
There is no mandatory amortization of goodwill.
are purchased
Corporations are required to conduct a test of
2. Stock purchase
impairment. Anything that made it makes worth
a. For T Corp, there is no gain or loss
less, you had to write it down.
on the sale of its stock, T Corp’s
Tax reduction opportunities: basis in its assets remains the same,
tax attributes are not affected.
1. Depreciation tax shields – step up in basis 3. Statutory Merger/Consolidation
following a purchase transaction a. IRS: merger looks like asset deal;
2. Goodwill – May be amortized over 15-year b. A merger is treated as a sale of the
period; reduces after-tax cost of acquisition; assets of T Corp to A Corp, followed
3. Transfer of tax attributes (e.g. NOLs, i.e. net by a liquidation (the same as an asset
operating losses) – Transfer from T Corp to sale transaction)
A Corp through merger or acquisition 4. Triangular Merger
Tax-free reorganizations: a. Forward subsidiary merger
i. If consideration is cash or
1. Buyer’s basis in newly acquired property is debt instruments, a forward
equal to seller’s basis prior to reorganization subsidiary merger is treated
(“carryover basis”); as a sale of the assets of T
18
Corp, followed by a c. All of T Corp’s tax attributes (e.g.

liquidation (the same as an NOL’s continue), subject to certain
asset sale transactions). limitations  good thing
ii. T Corp is taxed; TC-SH are
taxed. A Sub: non- Section 338 Election:
recognition treatment. 1. If A Corp acquires at least 80% of T Corp
b. Reverse subsidiary merger stock, special tax rule (§ 338) allows the
i. Best tax implication. parties to treat the stock sale as an asset sale
ii. A reverse subsidiary merger for tax purposes;
is treated as a sale of T a. This means A Corp can step up basis
Corp’s stock (the same as a of T Corp’s assets to equal the
stock sale transaction) purchase price A Corp paid for the
1. Capital gains stock.
treatment for TC-SH b. Both parties will have to agree;
2. No step-up in tax 2. Issue is whether the present value of the
basis of T Corp’s future tax saving resulting from the step-up
assets (that is, higher future depreciation and/or
3. A Corp acquires all amortization) be more than the additional
tax attributes of T tax currently due on the additional gain?
Corp a. Usually only optimal when T Corp
has NOLs that can offset gain
Notes: generated by the deemed asset sale.
1. Acquisition of T Corp (nonsubsidiary) is Section 338(h)(10) Election:

normally structured as a stock acquisition 1. Acquisition of stock of a corporation that is
without a § 338 election; a subsidiary corporation (member of a
2. Acquisition of T Corp (subsidiary consolidated group);
corporation) is generally structured as either 2. Transaction is treated as an asset sale by T
(1) asset acquisition or (2) stock acquisition Corp with gain or loss being reported on the
with a § 338(h)(10) election consolidated return of the selling parent
3. Taxable Asset acquisition: corporation;
a. A Corp takes a cost basis for T 3. A Corp can step up basis of T Corp’s assets
Corp’s assets (step up) to equal the purchase price A Corp paid for
b. None of T Corp’s tax attributes (e.g. the stock;
NOL’s come over to A Corp) 4. Subject to certain exceptions, only one level
4. Taxable Stock Acquisition: of tax applies on the deemed sale of the
a. A Corp takes a cost basis for T assets of T Corp (the subsidiary corporation)
Corp’s stock because the parent corporation has no tax
b. No change in T Corp’s basis for its upon receipt of the deemed liquidating
assets (carryover) proceeds;
19
Tax-Free Transactions: stock and “boot;” any

1. “A” Reorganization realized gain on an exchange
(Merger/Consolidation) that is part of a
a. (a) Reorganization … means (A) a reorganization must be
Statutory merger or consolidation recognized up to the amount
b. TC-SH will receive a “substantial of boot received
part” of consideration for T Corp’s 2. “A” Reorganization – Subsidiary Mergers
shares in the form of A Corp stock a. Requirements for forward subsidiary
i. Up to 50% of consideration merger and reverse subsidiary
can be boot merger A Reorganization are similar,
ii. The test is in the aggregate, except:
not by individual shareholder i. A transfer of “substantially
c. The A Corp stock received by the all” assets required for both
TC-SH can be voting or non-voting forward and reverse
d. No immediate tax on the A Corp subsidiary mergers
stock received by TC-SH ii. Voting stock consideration is
e. The tax basis of the A Corp stock required in reverse subsidiary
received by TC-SH is the same as mergers
the tax basis of the exchanged T iii. No more than 20% of
Corp stock consideration in a reverse
f. A Corp inherits the tax basis of T subsidiary merger may be
Corp in its assets (i.e., no step-up) boot
and all other tax attributes 3. “B” Reorganization (Voting stock-for-
g. There is tax on the portion of stock acquisition)
consideration received by TC-SH a. (a) Reorganization … means (B) the
that is not A Corp stock acquisition by one corporation, in
h. No requirement that “substantially exchange solely for all or a part of
all” assets of the target be acquired its voting stock (or in exchange
i. Unwanted assets of the target can be solely for all or a part of the voting
disposed of before transaction stock of a corporation which is in
j. Tax Consequences: control of the acquiring
i. For T Corp: No gain or loss corporation), of stock of another
is recognized by T Corp corporation if, immediately after the
ii. For A Corp: A Corp does not acquisition, the acquiring corporation
recognize any gain or loss has control of such other corporation
when it receives property (i.e. (whether or not such acquiring
stock held by TC-SH) in corporation had control immediately
exchange for its stock or before the acquisition)
debt; no step up in the basis b. A Corp exchanges solely its voting
of the assets acquired stock for stock of T Corp (no boot)
iii. For TC-SH: they may receive c. A Corp must have control (80% or
only A Corp stock or A Corp more voting power and 80% or more
20
ownership of non-voting stock) of T ii. The acquisition would

Corp as a result of transaction qualify under paragraph
d. Tax Consequences: (1)(C) but for the fact that the
i. T Corp: no gain or loss on the acquiring corporation
exchange exchanges money or other
ii. TC-SH: carryover tax basis in property in addition to voting
A Corp’s stock (i.e. basis in stock, and
A Corp stock = basis in old T iii. The acquiring corporation
Corp stock); no gain or loss acquires, solely for voting
on the exchange of stock stock described in paragraph
iii. A Corp: Basis in T Corp (1)(C), property of the other
stock = basis that old TC-SH corporation having a fair
had in stock; T Corp’s tax market value which is at
basis in its assets (i.e. no step least 80 percent of the fair
up) remains; tax attributes of market value of all of the
T Corp generally not affected property of the other
(but ability to use in the corporation;
future may be limited) c. Characteristics:
4. “C” Reorganization (Voting Stock-for- i. A Corp exchanges voting
Assets Acquisition) stock for substantially all of
a. (a) Reorganization … means (C) the the assets of T Corp
acquisition by one corporation, in ii. T Corp is liquidated
exchange solely for all or a part of iii. Stock of A Corp is
its voting stock (or in exchange distributed to TC-SH
solely for all or a part of the voting iv. Up to 20% boot allowed as
stock of a corporation which is in consideration
control of the acquiring corporation), d. Substantially means:
of substantially all of the i. At least 90% of the net assets
properties of another corporation, (assets – liabilities) and 70%
but in determining whether the of the gross assets
exchange is solely for stock, the ii. Measures by FMV on closing
assumption by the acquiring date
corporation of a liability of the other, e. An assumption of T Corp’s liabilities
or the fact that property acquired is will generally be disregarded (i.e.
subject to a liability, shall be not counted as giving
disregarded; consideration other than voting
b. (B) Additional consideration … stock)
cases if: i. But if boot is present,
i. One corporation acquires liabilities assumed will be
substantially of the properties counted in 20% boot
of another corporation, limitation
21
f. T Corp’s liquidation as part of the significant portion of T Corp’s business after

plan of reorganization, with very the reorganization
limited exceptions, is a requirement 3. Valid business purpose – Some reason for
g. Tax consequences: the reorganization other than tax savings is
i. T Corp: no gain or loss on the required for the transaction to be respected
exchange by the IRS and the courts
ii. A Corp: carryover basis in T a. If A Corp and T Corp are dealing at
Corp’s assets (i.e. no step arm’s length and are not owned by
up); acquires T Corp’s tax substantially the same shareholders,
attributes (but ability to use n the business purpose requirement
the future may be limited) generally will not be an issue
iii. TC-SH: no gain or loss on the b. If the parties are related, however,
exchange of stock; basis in A business purpose will be a
Corp stock = basis in old T substantial concern, especially in the
Corp stock presence of tax attributes such as
h. Example 1: T Corp owns $200k NOLs
assets, debt of $50k; A Corp offers 4. Step transaction doctrine – The
$150k in its voting stock. Valid C reorganization cannot be part of a larger
Reorg, debt is ignored. plan if taken in its entirely would be a
i. Example 2: T Corp owns $200k taxable transaction (if in its entirety would
assets, debt of $50k; A Corp offers be a taxable transaction)
$150k in its voting stock and $50k in 5. Since reorganizations are not “purchases”
boot. Not valid. Boot is 25%. for tax purposes, no goodwill is recorded;
j. Example 3: T Corp owns $200k no basis step up; and therefore there are no
assets, debt of $50k; A Corp offers future tax deductions associated with the
$25k cash, $25k assuming debt, purchase price.
150k stock. Not valid. Assumption 6. Substantially all assets means 90% of net
of debt is counted as boot. assets and 70% of the gross assets
Notes: FMV = fair market value
1. Continuity of ownership interest – ***

material part of the consideration received
by TC-SH must consist of stock of A Corp
CHAPTER 11 – THE COMARK LBO: A CASE
a. Therefore, too much boot can cause
STUDY
a transaction to fail to qualify as a
Bust Up Bid v. Merger of Equals.
reorganization, resulting in all of the
realized gain being taxable (boot: LBO model reflects the financial buyer’s
any consideration received by TC- determination that, in effect, Target is worth more if
SH that is not stock) the pieces are sold off. The proceeds raised from the
2. Continuity of business enterprise – sale of Target’s assets would then be used to reduce
surviving corporation must continue a the debt that had been borrowed in order to finance
22
the purchase price for Target. Merger of equals are assets of the acquiring and acquired persons;
the example of Aol-Time Warner. or
2. As a result of the transaction, the acquiring
person will hold an aggregate amount of
voting securities, NCI and/or assets of the
acquired person valued in excess of $50m.
*** (as adjusted) but at $200m. (as adjusted) or
less; and
a. One person has sales or assets of at
CHAPTER 12 – ANTITRUST
least $100m. (as adjusted); and
CONSIDERATIONS
b. The other person has sales or assets
From the Airgas 14D-9: of at least $10m. (as adjusted).
If a company proposes to acquire another, it must
A. Size of the transaction Test:
file a form with the Antitrust Division of the
If the value of the voting securities, NCI, assets, or
Department of Justice and the Federal Trade
combination thereof exceeds $200m. (as adjusted)
Commission. The acquired company will be
and no exemption applies, the parties must file
required to submit a responsive Notification and
notification and observe the waiting period before
Report Form with the FTC and the Antitrust
closing the transaction.
Division on the 10th day following Air Products’
filing of its Notification and Report Form. If the value of the voting securities, NCI, assets or
combination thereof exceeds $50m. (as adjusted)
The schedule has forward-looking information.
but is $200m. (as adjusted) or less, the parties must
*** look to the size of person test.
Premerger Notification Program B. Acquiring and Acquired

Hart-Scott Rodino Antitrust Improvements Act of Persons/Acquired Entity
1976 (§ 7A of the Clayton Act). Acquisitions of
Identify the “acquiring person” and “acquired
voting securities, non-corporate interests (“NCI”) or
person.” Person is the “ultimate parent entity” or
assets be reported to the FTC and the DOJ prior to
“UPE” of the buyer or seller. The entity that
consummation. Waiting period before completion
ultimately controls the buyer or seller (e.g. in an
of the transaction:
asset acquisition, the acquiring person is the UPE of
1. General rule: 30 days; the buyer, and the acquired person is the UPE of the
2. 15 days in the case of a cash tender offer or seller).
a bankruptcy sale.
In voting securities acquisitions, the acquiring
Who should report: person proposes to buy voting securities from
1. As a result of the transaction, the acquiring minority shareholders of the acquired entity, rather
person will hold an aggregate amount of than from the entity itself (e.g. tender offers). These
voting securities, NCI and/or assets of the transactions are subject to a reporting obligation on
acquired person valued in excess of $200m. the acquiring person and on the acquired person,
(as adjusted), regardless of the sales or despite the fact that the acquired person may
23
have no knowledge of the proposed purchase of its reportable, each party must submit its notification to
outstanding securities. the FTC and the DOJ. In addition, each acquiring
person must pay a filing fee to the FTC for each
C. Size of Person Test transaction that it reports.
Measures a company based on the person’s last
V. The Waiting Period
regularly prepared annual statement of incomes and After the filing, the parties may not consummate.
expenses and its last regularly prepared balance
sheet. It includes also the UPE and any other It usually starts after both acquiring and acquired
entities the UPE controls. persons files the forms with the agencies. Early
termination is granted per request. If agencies
If the value of the voting securities, NCI, assets or decide to stop, they can request an injunction from a
combination exceeds $50m. (as adjusted) but is federal court.
$200m. (as adjusted) or less, the size of person test
is met, and no exemption applies, the parties must 1. 30 days: the parties normally coordinate
file notification and observe the waiting period their filings. Open market purchases and
before closing the transaction. exchange offers. In this case, the waiting
period starts when the acquirer files the
D. Notification thresholds filing with the FTC. 16k/day penalties.
Five notifications thresholds: 2. 15 days: cash tender offer. Begins when the
acquirer person file. The target must file up
1. A buyer holding more than $50m; to 10 days, that doesn’t affect the tender
2. Voting securities valued at $100m. or period.
greater but less than $500m;
3. Voting securities valued at $500m. or VI. Review of the Form
greater; Waiting period only begins after the Form is filled
4. 25% of the voting securities of an issuer, if out accurately. The agencies may always request
the 25% (or any amount above 25% but less extra information or documentary material.
than 50%) is valued at greater than $1b; and The issuance of a second request extends the
5. 50% of the voting securities of an issuer if statutory waiting period until 30 days (or in the case
valued at greater than $50m. of a cash tender offer or certain bankruptcy filings,
Don’t need to file all the time. When notification is 10 days) after both parties are deemed to have
filed, the acquiring person is allowed one year from complied with the second request (or in the case of
the end of the waiting period to cross the threshold a tender offer and bankruptcy, until after the
stated in the filing (e.g. once an acquiring person acquiring person has completed). The request must
holds 50% or more of the voting securities of an be made before the waiting period expires.
issuer, all subsequent acquisitions of securities of
IX. Agency Action
that issuer are exempt, see p. 5). The staff can recommend no further action, or seek
E. Exempt Transactions injunctive relief.
If not fit to an exemption, and it has been

determined that a particular transaction is
24
X. Failure to File chairman and CEO, chose a proposed price of $55

“Any person, or any officer, director or partner” without consultation with outside financial experts.
may be liable for a penalty of up to $16k a day for He only consulted with the company's CFO, and
each day the person is in violation of the Act. that consultation was to determine a per share price
that would work for a leveraged buyout. Van
Herfindal-Hirschmann Index (HHI): Gorkom and the CFO did not determine an actual
2010 Guidelines: total value of the company. The court was highly
 Post-merger increase in HHI of less than critical of this decision, writing that "the record is
100 points, generally we are not going to devoid of any competent evidence that $55
seek any further action. represented the per share intrinsic value of the
 Post-merger in HHI of less than 1500 points Company."
in total, generally we are not going to seek The proposed merger was subject to Board
any further analysis. approval. At the Board meeting, a number of items
 Post-merger HHI between 1500 and 2500 were not disclosed, including the problematic
AND increase in HHI of 100 points, methodology that Van Gorkom used to arrive at the
generally antitrust consider this industry proposed price. Also, previous objections by
moderately concentrated. Potentially raise management were not discussed. The Board
significant competitive concerns. Warrant approved the proposal.
scrutiny.
 Post-merger HHI over 2500 AND an The Court found that the directors were grossly
increase in HHI between 100 and 200 negligent, because they quickly approved the
points. In this circumstance, we see a market merger without substantial inquiry or any expert
which is highly concentrated. Post-merger advice. For this reason, the board of directors
HHI is over 2500. Warrant scrutiny. breached the duty of care that it owed to the
 Post-merger HHI of over 2500 AND corporation's shareholders. As such, the protection
increase in HHI of over 200 points. of the business judgment rule was unavailable.
Rebuttable presumption that the merger is Furthermore, the court rejected defendant's
likely to enhance market power. Unlikely to argument that the substantial premium paid over the
be approved in the current form. market price indicated that it was a good deal. In so
*** doing, the court noted the irony that the board stated
that the decision to accept the offer was based on
their expertise, while at the same time asserting that
CHAPTER 13 – BUSINESS JUDGMENT RULE it was proper because the price offered was a large
AND ENHANCED SCRUTINY premium above market value.
Smith v. Van Gorkom (Del. 1985, p. 455) The decision also clarified the directors' duty of
Also called "Trans Union case." disclosure, stating that corporate directors must
disclose all facts germane to a transaction that is
The case involved a proposed leveraged buy-out
subject to a shareholder vote.
merger of TransUnion by Marmon Group which
was controlled by Jay Pritzker. Defendant Jerome ***
W. Van Gorkom, who was the TransUnion's
25
Unocal Corporation v. Mesa Petroleum Co. (Del. It found that the Unocal's board of directors had
1985, p. 519) reasonable grounds for believing that a danger to
In Unocal, the Court held that a board of directors corporate policy or effectiveness existed and that
may only try to prevent a take-over where it can be the response was reasonable in relation to the threat
shown that there was a threat to corporate policy posed. This reasonable relation analysis permitted
and the defensive measure adopted was proportional an analysis of the price, nature, and timing of the
and reasonable given the nature of the threat. offer as well as the impact on shareholders,
creditors, customers, employees, and the
This requirement has become known as the Unocal community.
test for board of directors (as later modified in
Unitrin, Inc. v. American General Corp., which Note that whereas Cheff v. Mathes had sanctioned
required the tactics to be "coercive" or "preclusive" greenmail, or payment to the raider to go away, in
before the court would step in). Unocal the court sanctioned reverse greenmail, or
payment to shareholders excluding the raider.
Mesa Petroleum had made a front-end loaded two-
tiered hostile bid for Unocal in which the front end The significance of the opinion flows from the
was $54 in cash, and the back end of the deal was court's premise that, due to the inherent conflict of
$54 in junk bonds. Because most shareholders interest involved, takeover defenses pose a
would prefer to receive the cash instead of the significant danger to shareholders. In essence, the
bonds, shareholders were expected to tender their Unocal court feared that a board may use takeover
shares into the deal, even if they did not think $54 defenses to impermissibly prevent threats to
was a fair price. If a shareholder declined to tender, corporate policy or to the board's control over the
that shareholder risked being cashed-out for $54 corporation. As a result, there was a need for "an
dollars in risky debt instruments instead of cash. enhanced duty" on the board, so as to ensure that
their decisions in this area were meant only to
In response to the Mesa tender offer, Unocal made a further the welfare of the corporation and its
self-tender at $72 for all but the Mesa shares. The shareholders. Therefore, the court ruled that in order
Unocal board attempted to launch a self-tender offer for the board to be allotted the protection of the
to combat an unsolicited tender offer by Mesa business judgment rule, the board must demonstrate
Petroleum (Mesa). The self-tender offer would be that it was responding to a legitimate threat to
triggered upon Mesa acquiring sixty-four million corporate policy and effectiveness, and that its
shares of Unocal, and would mean that Unocal itself actions were "reasonable in relation to the threat
would buy-back 49% of the outstanding shares of posed."
Unocal - but none of the shares to be bought-back
could be shares held by Mesa. ***
The trial court found that this selective exchange

offer was not legally permissible, and issued a CHAPTER 14 – INTRODUCTION TO
preliminary injunction against the use of the self- TAKEOVER DEFENSES (POISON PILL)
tender offer defense.
Shareholder Rights Plan: Poison Pill (p. 542).
The Delaware Supreme Court reversed the trial If triggered, the flip-in feature would give
court. shareholders, other than the holder triggering the
26
flip-in, the right to purchase shares of the company 1994: Arnold v. Society, Revlon duties. Implied:
at a discount to market price (thereby diluting the auction bidding in itself was enough to raise the
triggering shareholder). Revlon duties.
*** 1995: Del. SC: In Re Santa Fe Pacific, Revlon

duties (not only require a bidding process) require
ALSO seek to sell control OR result the break-up
CHAPTER 15 – ENHANCED SCRUTINY
the company. Clarify: just initiating is not itself, sell
Final Conclusion about Revlon duties: itself in (A)(1) needs change of control now.
When Triggered?
Healthcare: mere seeking auction that can possibly
1) When sale becomes inevitable. Inevitable: change control is not going to be enough for Revlon
(1) the board agrees to auctioning off duties for themselves. In some circumstances
company; (2) active bidding process begins. auction could be enough, but usually is not,
2) Bidding process, active bidding process, especially if you don’t know how transaction will
corporate initiates active business (3) look at the end of the day.
reorganization or transaction that involves a
(A)(2): restructure business can be done in two
break-up, (4) change in control.
circumstances: (1) from random decision; (2) to
3) Break-ups inevitable, active bidding, put on
resist a transaction, for example making less
block (= board actively seeking alternative
attractive. So if you are conducting (A)(2): a mere
investors), target abandons alternative
reorganization won’t trigger the Revlon duties (no
strategy (=editorial integrity and then leaves
duty to shop, but duty to inform themselves).
it),
(B): alternative transaction that seeks the break-up,
Page 30, In Re Smurfit
you can sometimes apply Unocal. However, Revlon
(A) When a corporation iniatives an active bidding will be implicated, ONLY if you change your
process to: course of the company, if you merely respond from
an offer by mere rejecting and maintaining the
(1) Sell itself; OR status quo, Revlon will not be implicated. Revlon
(2) Affect business reorganization, involving a would only apply in an offer that would result in
clear break-up of the company; change of control.
(B) When in response to a bidder’s offer, a target Revlon: would only initiate when the directors start
abandons its long term strategy and seeks an negotiating for sale of control.
alternative transaction, involving a break-up of the
company. (C): there is no longer when they are cashed out, the
board should be to maximize the value. The control
(C) When approval of a transaction results in a sale premium, will be gone and never available again. If
OR change of control. we look what sale of control means, means sale of
cash. 100% cash of sale? No, all non-stock
consideration. In Re Smurfit: less than 100% but
A: Conduct an auction order to the investment can still be a change of control. 50% cash, 50%
banker: trigger Revlon duties.
27
stock. Revlon: is enough to say that this is a change premium to lose. They are being cashed, there is no
of control. long run for them.
There is no long run for half of your investment. We already have a monitoring in place, because of
Arco. We don’t need Revlon here to protect a
Paramount v. QVC: stock deals do not triggers minority.
Revlon duties. Mostly stock will not trigger Revlon
duties if you have a situation when you have Arco would get the same price of the 20%
shareholders which are unaffiliated in the acquirers. shareholders. Chancery Court: Revlon duties will
QVC tells, however, if following consummation of not apply. Only if there is a change of control.
transaction would be a controlling shareholder who Public shareholders have no control premium and
can set the course of the company and make the no opportunity to lose. Therefore they have no
decisions, you relegate the shareholders to minority, expectation. Not a change of control intended by the
where they are a minority shareholder, at mercy of Revlon court. Supreme Court of Delaware: you got
the controller. In that case, Revlon duties will apply. it wrong, there is no change of control (identities
from Arco to Lyondell), but the entire business is
However, if the majority (with control less than being sold, this is the opportunity is to be sold, they
50%) has some provisions that increase their de must use the highest price that would be available.
facto control, the court would say that the person
would be considered a controller. ***
Stock for stock merger: NO REVLON. Comparative Between Netsmart, Lear and
Topps
Controller: REVLON
Netsmart Lear Topps
Violate their Q1: Cash out Q1: Selling the
Revlon duties. merger. Sale of company for
We want board members in their sights, when they Sale of control, control. cash.
are selling control. You throw a party and nobody consideration is Q2: Icanhn Q2:
cash. started buying a Underperfomanc
showed up? No Revlon duties, you did your job. 100% cash. – lot of stock. e, directors lost a
Revlon land Then a private proxy fight
If it’s a stock for stock merger, without a controlling
Who do they placement. (active
shareholder, you don’t have the duties and it doesn’t targeted as their CEO private investment
matter that you did or not your duties. buyers? Private deal. The board group). New
equity, they make approved it. directors
MOST IMPORTANT FOR HER: WHAT’S THE equity infusion. Who is (dissident) were
CONSIDERATION IS!!! Stock not controller the wondering if
common. process? They they should be
In a case in which involved a sale of a target Strategic buyers, formed a sold. Directors
company, Arco Chemical, which was 80% by Arco. they use their committee, but are looking for
Arco decided to sell Arco Chemical to Lyondell. stock sometimes. the CEO an auction.
Whether or not Revlon duties actually apply? (they were absent controlled it Q3: Eisner
Should Revlon duties apply here? They are already in this case, so anyway. Great suggested a
minority, so they shouldn’t have control. No control Revlon would negotiator. How going-private
apply) Icahn felt as a transaction.
Management stalking horse? Topps is in
28
wanted to keep They allowed a trouble. Eisner is pre signing: that’s enthusiastic.
control. They go-shop. at the helm. not enough to met Standstill
wanted to Termination fee They failed an the obligations provision:
participate. 3,5%. There auction process. under Revlon. If common in these
No strategic was a fiduciary Q4: They had a you are not transactions: you
buyers: (1) out. Plaintiffs: go-shop clause. actually soliciting will have to
conflict of they had a Questionable: bids, you haven’t promise that you
interest; (2) conflict of the how the auction met your aren’t going
couldn’t find one. interest. That really worked. obligations under hostile.
Q1: Revlon would allow Eisner is here Revlon.
applies because CEO more today. We tried
money was security. Judge an auction for
involved. Strine: Revlon the company.
Q2: Private equity duties, but it Hate Upper- (1) Why Revlon applies?
formers was ok, not a deck. Forty day (2) How the deal was initiated?
approaching model. No go-shop. (3) Process: formal auction?
them. blueprint how Q5: 8m +3,5m (4) Who controlled the process?
Q3: Seven private to maximize. expense
(5) Conditions under which the definitive
equity firms. No Reasonable reimbursement if
strategic buyers in basis. Only if under the time. If agreement was signed?
the context. They you have a after, 4,6%: two (6) Deal protection devices were given to the
supposedly had great tier termination successful bidder or buyer?
no interest. knowledge of fee. Why? Gives (7) Court’s view: what process features or deal
Q4: They had a the model some protection devices were ok?
special without doing a compensation
committee. They formal auction. against providing
were kind of lax. That situation is an incentive for a
Management extremely rare. third-party. What kind of process is to pass? This is about
controlled the Appearance: information. Netsmart: if you are a small company,
process. palatable for a you need to do a small checking. You can’t rely on
Q5: Price was the party coming.
a hostile bidder around. Since it’s small, you need
reason. Highest Judge Strine:
bidder. you can’t do to do a pre-signing market check.
Q6: Window shop everything
High profile company: other companies will step.
provision (no go during that time.
shop). You can’t have However, this is not advisable. You need to have
Termination fee unlimited. some reason to say to take the offer is that on the
or break-up fee Matching rights: table. In Netsmart we saw the problem of focusing
(3%), wasn’t match any only on financial buyers, in excluding to any
triggered a no subsequent offer strategic buyers. Strine, that stale information. Your
vote, fiduciary that was performances have improve, if you don’t ask
out. We didn’t superior. Afraid
strategic buyers, you are not going to know.
have any strategic of getting
buyers. proprierty No single blueprint when we talk about Revlon.
Q7: Netsmart information.
can’t rely on Upper Deck and
others’ companies Topps: both
procedures. No weren’t
29
1. Auction ongoing: middle of auction, you corporation and its shareholders (citing
have to run a fair process, let’s the higher Unocal).”
bidder win. 2. The poison pill was ok (helped to raise the
2. Single offer, no reliable grounds for offer from $42 to an eventual high of $58).
determining the adequacy of price: 3. The repurchase plan was also ok. “In that
directors must at least solicit the market regard the board acted in good faith, and on
to see if higher bids can be available an informed basis, with reasonable grounds
3. Single offer, BUT reliable evidence to to believe that there existed a harmful threat
assess the fairness of the transaction: to the corporate enterprise. The adoption of
allowed to get the transaction, but this a defensive measure, reasonable in relation
circumstance is very rare. to the threat posed, was proper and fully
accorded with the powers, duties, and
responsibilies conferred upon directors
*** under our law.”
4. It eventually became apparent to all that the
Revlon, Inc. v. MacAndrews & Forbes Holdings, break-up of the company inevitable. The
Inc. (Del. 1985, Moore, p. 550) Revlon board’s authorization ... was a
In a deal in which there was an exclusivity recognition that the company was for sale.
agreement in addition to a no-shop provision, the The directors’ role changed from
court found that Revlon directors had breached their defender of the corporate bastion to
duty of care by entering into the transaction and auctioneer charged with getting the best
effectively ending an active auction for the price for the stockholders at a sale of the
company. Agreements weren’t illegal per se, but company.
they were when seen in the aggregate. 5. The court ruled out the other constituencies
(noteholders). [It’s inappropriate] “when an
Pantry went hostile using a junk bond and because
auction among active bidders is in progress,
of that Revlon’s board issued (1) a company
and the object no longer is to protect or
repurchase up to 5m of its nearly 30m. outstanding
maintain the corporate enterprise but to sell
shares and (2) to adopt a Note Purchase Rights Plan.
it to the highest bidder.”
Several discussions were around, so Revlon was 6. Lock-up is not illegal per se. However,
trying to sell itself. The board approved a $57.25 while lock-ups which draw bidders into the
deal, and then Pantry Pride raised its bid to $58 (in battle benefit shareholders, similar measures
fact, Forstmann’s offer was superior, but PP’s offer which end an active auction and foreclose
was immediate, so no discount). further bidding operate to the shareholders’
detriment.
Process: 7. Favoritism for a white knight to the total
exclusion of a hostile bidder is only
1. “When a board implements anti-takeover
justifiable when the latter’s offer adversely
measures there arises the omnipresent
affects shareholder interests.
specter that a board may be acting primarily
8. Revlon duty is a duty of care: in granting
in its own interests, rather than those of the
an asset option lock-up to Forstmann, the
court concluded that under all circumstances
30
the directors allowed considerations other 2. Absent a limited set of circumstances, as

than the maximization of shareholder profit defined under Revlon, a board of directors,
to affect their judgment… No such while always required to act in an informed
defensive measure can be sustained when it manner, is not under any per se duty to
represents a breach of the directors’ maximize shareholder value in the short
fundamental duty of care. term, even in the context of a takeover.
*** Without limiting, a company is in Revlon mode:
Lock-Up Options: 1. When a corporation initiates an active

1. Option by the bidder to buy assets a bidding process seeking to sell itself or to
favorable price: lock-up option. effect a business reorganization involving a
2. Agreement not to seek other bidders: no- clear break-up of the company;
shop clause. 2. In response to a bidder’s offer, a target
3. Payment of a significant fee: termination abandons its long-term strategy and seeks
fee, hello fee, or goodbye fee. and alternative transaction involving the
breakup of the company.
***
Conclusion:
Paramount Communications, Inc. v. Time, Inc.
(Del. 1989, p. 576) 1. Time’s responsive action to Paramount’s
The issue is whether Time that was planning to tender offer was not aimed at “cramming
merger with Warner was in Revlon mode because it down” on its shareholders a management-
was trying to sell itself. It wasn’t. They argued that sponsored alternative, but rather had as its
the original Time-Warner agreement resulted in a goal the carrying forward of a pre-existing
change of control. transaction in an altered form. Thus, the
response was reasonably related to the
The court found that Time’s board didn’t enter into
threat.
Revlon mode, even considering the unequal share 2. Time was required to incur a heavy debt to
exchange. The original plan of merger with Warner finance its acquisition of Warner, that fact
was subject only to a business judgment rule alone does not render the board’s decision
analysis. unreasonable so long as the directors could
No approval of Time’s shareholders because reasonably perceive the debt load not to be
Warner would merger to a Time’s subsidiary in so injurious to the corporation as to
exchange of stock. However, Paramount kept jeopardize its well being.
bullying the company and they decided to take debt. ***
1. Long-term v. short-term: irrelevant,
Paramount Communications, Inc. v. QVC
directors are obliged to chart a course for a
Network, Inc. (Del. 1994, p. 588)
corporation which is in its best interests In a sale of control, the court granted an injunction
without regard to a fixed investment against a board that didn’t follow its Revlon duties.
horizon.
31
Paramount was willing to merger with Viacom. premium) is being sold and may
QVC made a better offer, which Paramount refused. never be available again; and
c. The traditional concern of Delaware
Change of control: While Paramount is a public courts for actions which impair or
held corporation, Viacom was controlled by impede stockholder voting rights.
Redstone. QVC has several large shareholders. 4. Under this enhanced scrutiny, the courts
Defensive measures: should decide if the board’s decision was
under a range of reasonableness.
1. No-shop provision (open to unsolicited 5. Revlon and Time-Warner are different
bids); because in the latter there was no change of
2. Termination fee ($100m.); control.
3. Stock Option Agreement (option granted to 6. Rule: when a corporation undertakes a
Viacom to purchase 19.9% of shares at transaction which will cause:
$69.14, Viacom was going to pay $85 per a. A change in corporate control; or
share, when final). b. A break-uo of the corporate entity,
the obligation is to seek the best
Consideration: $80, $50 stock, $30 cash.
value reasonably available to the
After a bidding war, Viacom $85, QVC $90. The stockholders.
board rejected QVC’s offer qualifying it of 7. Provisions of the agreement which are
“extremely conditional.” inconsistent with fiduciary duties are
invalid.
Process: 8. The Court found that the stock option
agreement had become draconian.
1. When there is a change of control there is
dilution. The price for exerting controlship
is a control premium, which also
compensates the minority for their resulting
loss of voting power. Since there is a change
***
in control, the shareholders should be
protected or paid for.
2. Obligation of the board: The board should CHAPTER 16 – ENHANCED SCRUTINY
be informed, they have “a duty to inform
themselves, prior to making a business Final notes about Unocal / Unitrin
Unocal (1985) / Unitrin (1995) test:
decision, of all material information
reasonably available to them.” (1) Directors must show they had reasonable
3. Board action in change of control raises grounds for believing that a danger to
enhanced scrutiny, which is mandated by: corporate policy and effectiveness existed.
a. The threatened diminution of the Legally cognizable threat.
current stockholders’ voting power; a. Good faith, reasonable investigation.
b. The fact that an asset belonging to b. Majority of independent outside
public stockholders (a control independent directors.
32
c. Process alone is insufficient. The schedule was filed to answer the attacks of the
Reasonableness of investigation and raider. The main point is that it supposedly
process, BUT ALSO undervalues the company. “The standalone values
REASONABLENESS OF THE of Airgas from executing its strategic plan
RESULT OF IT. considered by the Airgas Board do not give effect to
(2) Directors to show that the mechanism any control premium.” Arguments:
employed was reasonable in relation to
threat posed. 1. Offer grossly undervalues Airgas;
a. Not coercive (antitaker mechanism is 2. Timing is opportunistic;
one that make the target corporation 3. Airgas received inadequacy opinions from
unattractive, like getting tons of its financial advisors;
debt). 4. The offer is highly uncertain and would
b. Not preclusive (any type of provide considerably deferred value;
mechanism that makes the takeover 5. The quantity and nature of the Offer’s
mathematical impossible or conditions create major uncertainty and risk;
realistically unattainable). 6. Air Products’ tactics have been designed to
i. Mathematical impossible. distract and divert attention from the grossly
ii. Realistically unattainable. inadequate and highly opportunistic nature
iii. However, in 2010, there is no of its Offer;
need to have those two. Now, 7. An acquisition of Airgas by Air Products
preclusive means would likely reduce rather than enhance
REALISTICALLY stockholder value
UNATTAINABLE.
c. Not outside of range of
reasonableness.
*** In re Airgas Inc. Shareholder Litigation (Del.

Ch. 2011) (by Chandler)
Schedule 14D-9 of Airgas, Inc. Shareholders of Air Products are attempting to
It contains: remove its takeover defenses, including “poison
1. Subject Company Information; pill.” The Chancery Court decided: (1) Unocal and
2. Identity of Filing Person (in the case, the not BJR applied, (2) board exercised good faith and
same person); reasonable investigation with respect to the threat
3. Past contacts, transactions, negotiations and posed, (3) offer was not structurally coercive, (4)
agreements; offer did not pose threat of opportunity loss, (5)
4. The solicitation or recommendation; board met its burden to articulate a legally
5. Persons/Assets Retained, Employed, cognizable threat, and (6) defensive measures were
Compensated or used; proportionate. All claims dismissed.
6. Interest In securities of the subject company; Air Products approached the directors of Airgas to
7. Purposes of the transaction and plans or sell the company. The board rejected, and then Air
proposals; Products made a tender offer and sued. Air Products
8. Additional info, exhibits.
33
acquired some part of the board. The new members An offer is structurally coercive when the values of
aligned with the board. Air Products sued alleging the front end is different from the consideration that
the pill was draconian. They lost. is get on the back end.
Unocal standard, to justify its measures, the There is no duty to maximize shareholder value in
board of a target corporation must show: (1) that the short term.
it had reasonable grounds for believing a danger
Inadequate price = substantive coercion. If an offer
to corporation policy and effectiveness existed,
is inadequate (low ball), the board may properly
i.e., the board must articulate a legally
employ a poison pill.
cognizable threat [threat and reasonable
investigation], and (2) that any board action All the defenses should be analyzed collectively as
taken in response to that threat is reasonable in a unitary defense.
relation to the threat posed [the board must also
show and explain this threat]. Defensive measure is coercive if it is aimed at
“cramming down” on its shareholders a
First part of the prong requires the board to show management-sponsored alternative.
good faith and reasonable investigation, which can
be materially enhanced by the approval of a board Defensive measure is preclusive if it makes a
comprised of a majority of outside independent bidder’s ability to wage a successful proxy contest
directors. “[H]ave the burden of showing the and gain control of the target’s board realistically
reasonableness of their investigation, the unattainable. [Takeover proof is forbidden.]
reasonableness of their process, and also of the
Remember: “[W]e hold that the combination of a
result that they reached.”
classified board and a Rights Plan do not constitute
Second part: the court engages in a substantive a preclusive defense.”
review of the actions, checking if the action is
Effective staggered board (ESB) can be considered
proportionate. Proportionality means if it’s not
preclusive: (1) won a proxy contest for 1/3, (2) not
draconian [preclusive or coercive], and if it fell
able to proceed with a tender offer next year
within a range of reasonable responses to the threat.
because of the pill, (3) take all economic risks to
Unocal applies because a theoretical specter of maintain the tender for another risk. No ESB here.
disloyalty still exists. “Because of the omnipresent
Delay in the voting is not preclusive so long as
specter of entrenchment in takeover situations.”
obtaining control at some point in the future was
BJR would apply when no defensive measures are
realistically attainable.
taken in response to a threat.
A staggered board is not a preclusive defense.
Unocal applies to both independent and insiders.
Independence only ameliorates the application of The Unocal proportionality standard shifts the
the first prong. scrutiny to the range of reasonableness of a board’s
response.
A decision to not engage in a merger is reviewed
under the business judgment rule. The board may follow a course designed to achieve
long-term value even at the cost of immediate value
maximization.
34
Issue: can the board maintain a pill to prevent the ii. Opportunity loss (not found
shareholders to exert their vote when an offer is not because had lots of time).
coercive, and it’s all cash? Answer: yes. iii. Substantive coercion (two
elements: a, management
Airgas met its burden under Unocal to articulate a expects value of the company
legally cognizable threat and has taken defensive greater than the offer, and b,
measures that fall within a range of reasonable stockholders must reject
responses proportionate to that threat. management) (found).
Threat in this case: (1) the allegedly inadequate 2. The continued maintenance of defensive
price of Air Products’ offer, (2) coupled with the measures proportionate to the threat?
fact that a majority of Airgas’s stockholders would a. Preclusive or Coercive.
likely tender into that inadequate offer. i. Call a special meeting to
remove the board by a 67%
Threats possible: (1) structural coercion (risk that supermajority (not preclusive
disparate treatment might distort shareholders’ per se, but was considered
tender decisions, e.g. two-tiered offers); (2) not realistically attainable)
opportunity loss (deprive shareholders to select a ii. Run Another Proxy Context
superior alternative, like from a competitor); (attainable, because of this,
substantive coercion (mistakenly accept an not preclusive).
underpriced offer because they disbelieve b. Range of Reasonableness (a,
management). consummation of the deal may not
happen, b, control would be
A mild threat would not justify a board’s decision
complete, so no gain under the
to keep a pill. One example: a tender offer with a
appraisal).
small value difference from management, when
management’s alternative was less certain. ***
As much as a company doesn’t abandon its long

term plan, the board is not under a duty to jettison CHAPTER 17 – ENHANCED SCRUTINY
its plan and put the corporation’s future in the hand (CONT.)
of its stockholders.
In re Netsmart Technologies, Inc. Shareholders
There was some discussion about the negotiations Litigation (Del. Ch. 2007) (by Strine)
reaching an end state, which was found in this case. Netsmart entered into a merger agreement with
Insight and Bessemer. Its stockholders would
Process of Analysis: receive $16.50 per share. Originally listed in
1. The Board established the existence of a NASDAQ.
threat? Holding: (1) shareholders are not going to prevail in
a. Process. the process used; (2) they are going to prevail in
b. What is a threat? their Revlon claim by not exploring a strategic
i. Structural coercion (not buyer [but since there isn’t any competing offer,
found, not two-tiered) they decided to not enjoy the transaction in the
35
table]; (3) not disclosing the financial projections to financial advisor three to seven years earlier were
shareholders rendered disclosure incomplete; (4) not reliable market checks, and there was a basis to
preliminary injunction rendered to provide perceive that management preferred private equity
additional disclosure. [i.e. only forced extra route as a strategic buyer would have less interest in
disclosure, but didn’t enjoy the deal.] retaining management.
In order to warrant preliminary injunctive relief, Black letter: with a strong fairness opinion, they
plaintiffs must prove that: (1) they are likely to may approve the transaction without conducting “an
succeed on the merits of their claims; (2) they will active survey of the market,” without it the fairness,
suffer imminent, irreparable harm if an injunction is this is a suggestion of breach of Revlon duties.
not granted; and (3) the balance of the equities When directors possess a body of reliable
weighs in favor of issuing the injunction. evidence with which to evaluate the fairness of a
transaction, they may approve that transaction
When it decides to sell the corporation for cash, the
without conducting an active survey of the
corporation's board assumes the fiduciary duty to market.
undertake reasonable efforts to secure the highest
price realistically achievable given the market for Whenever the board seeks shareholder action, they
the corporation. need to disclose everything (fully and fair material).
Material: reasonable for shareholder deliberation
However, the board has no obligation to follow a (reasonable investor standard).
checklist on how to proceed with this process,
which only need to be a logically sound process to In this case, stay the course information was
get the best deal realistically attainable. incomplete and too pessimistic.
Revlon duty is not bare rationality of BJR, but it Merely being friends does not make directors not
focus more on the decision-making process, “and independent. Interlocking disclosure is not material.
less tolerance for slack.”
A termination fee which is not triggered on a naked
Shareholders were likely to prevail, for purposes of vote seems to not be coercive or preclusive.
a preliminary injunction regarding corporation's
merger with two private equity firms which William Blair dropped the name of Netsmart from
intended to retain existing management, on their Nov. 2003 to Oct. 2005. They had a 1.7% fee if
claim that corporation's directors breached their they closed a deal. The cold calls were only to test
Revlon duties to take reasonable efforts to secure the waters. “A strategic sale is a good alternative
the highest price realistically achievable because but we did try it once before and there was no
directors failed to take reasonable steps to explore interest so a reasonable approach would be to run a
whether strategic buyers might be interested in parallel track with private equity.”
buying corporation; board's consideration of Scalia, the CEO, also defended the idea of going
whether to seek out strategic buyers was cursory, private, how equity firms give incentives to
corporation had in recent years been transformed management (with options). Profit: sale of equity
through acquisitions and lucrative contracts such and being in management.
that sporadic contacts with possible strategic buyers
by chief executive officer (CEO) and corporation's
36
In 2006, William Blair “dumped” a few strategic a. Approximately half of the Merger
and equity buyers. They decided to not seek out a Consideration is in cash (44% cash
strategic buyer in May 2006. and 56% stock). Defendants argue
that there is no change of control,
The Court, however, found: (1) the board never because the postmerger entity will
considered the option of being under a big company remain as a large, fluid, changeable
[think about synergies]; (2) no evidence to support and changing public market.
the assertion that Netsmart’s ability to sell its b. Revlon is triggered when:
products would be hindered by discreet and i. When a corporation initiates
professional overture to select strategic players. an active bidding process
Netsmart went for several equity buyers and no seeking to sell itself or to
strategic buyer. Eventually they signed a merger effect a business
agreement with Insight, with a provision to accept reorganization involving a
an unsolicited proposal. No naked no vote break-up clear break-up of the
fee (the board rejected). Nov. 2006 merger was company;
announced. ii. Where, in response to a
bidder’s offer, a target
Revlon duty here was triggered because they abandons its long-term
decided to sell the company for cash. strategy and seeks an
alternative transaction
“The mere fact that a board did not, for example, do
involving the break-up of the
a canvass of all possible acquirers before signing up
company; or
an acquisition agreement does not mean that it
iii. When approval of a
necessarily acted unreasonable.” The no single
transaction results in a sale or
blueprint mantra is not a one way principle, which
change of control.
means that it also exists to tell the board to work
c. In the case, there was no active
more.
bidding process to sell itself or
Revlon duty case more about the reasonableness of effected a reorganization involving
the process. However, they court analyzed the the break-up of Smurfit-Stone. The
valuation of the deal, which is in the low range of question is whether the consideration
values. in cash would constitute a change in
control.
*** d. Pure stock-for-stock transactions
do not necessarily trigger Revlon.
In Re Smurfit-Stone Contained Corp.
i. Exception: when the
Shareholder Litigation (Del. Chancery 2011)
resulting entity has a
Plaintiffs allege that the transaction was a change of
controlling stockholder such
control and thus the board failed to comply with its
that the target’s stockholders
Revlon duties. They lost.
are relegated to minority
Process: status in the combined entity.
e. In cash-for-stock cases Revlon will
1. The applicable standard. govern because “there I no tomorrow
37
for the corporation’s present They tried to hold a public auction before and
stockholders.” failed. Merger agreement with the private equity
f. In a 33% cash, 67% stock, the firm (Eisner) had a right to accept a superior
Supreme Court in In re Santa Fe proposal (in fact, it was a go-shop provision),
Pacific Corp., declined to apply the subject to a termination fee and a match right.
Revlon standard.
g. In In re Lukens Inc., the Chancery Court concluded that the disclosure related to the
court found that 60% of cash would strategic bidder was insufficient. (1) The board
be the threshold. should disclose the material facts in the proxy; and
h. In this case, the court found that (2) Upper Deck (the strategic buyer) should be
Revlon applied. released from the standstill for purposes of: (a)
i. “Even if the resulting company has publicly commenting on its negotiations with
no controlling stockholder and Topps; and (b) making a non-coercive tender offer
Smurfit-Stone’s stockholders will on conditions as favorable or more favorable than
not be relegated to a minority status those it has offered to the Topps board. Goal: loss
in the postmerger entity, half of their of opportunity.
investment will be liquidated.” So, The court found that both companies were too lazy
even if there is no change of control, in getting their deals done. Topps should have
Revlon will strike. “The fact that considered the offer.
control of A Corp will remain in a
large pool of unaffiliated ***
stockholders, while important,
In re Lear Corp. S’ holder Litigation (Del. Chan.
neither addresses nor affords
2007)
protection to the portion of the
Lear is a supplier of automotive interior systems.
stockholders’ investment that will be
It’s listed on the NYSE. In 2006 substantial part of
converted to cash and thereby be
it was acquired by Carl Icahn. Plaintiffs sued
deprived of its long-run potential.”
alleging breach of Revlon duties. They lost.
j. So, 50% is not certain, but can strike
Revlon. In 2007, Icahn proposed a go-private transaction in
which he would pay $36 per share. He indicated
***
that he wouldn’t allow a pre-signing auction, but
would allow the company to freely shop after
CHAPTER 18 – ENHANCED SCRUTINY signing, during a so-called go-shop period, but
(CONT.) only so long as he received a termination fee of 3%.
The board accepted. After signing the board’s
In re The Topps Company Shareholders financial advisors aggressively shopped Lear to
Litigation (Del. Ch. 2007, p. 651) both financial and strategic buyers. Nobody
Topps was to be sold. The CEO was trying to sell wanted and nobody also proposed an unsolicited
only to private equity. The court granted an superior bid.
injunction.
Lear’s CEO helped in the bidding process, which
the court disapproved. However, the court found
38
that the post-signing check (mini-bidding) was reasonably available to the corporation.
adequate and the terms as well. Reasonableness, not perfection…
4. The Court found that the CEO was open to
The Court also provided an injunction (the only deal with other buyers.
thing Plaintiffs won) because the proxy didn’t 5. Although the $36 price may have been
disclose “that shortly before Icahn expressed an below what the Lear board hoped to achieve,
interest in making a going private offer, the CEO they had a reasonable basis to accept it (p.
had asked the Lear board to change his employment 22 of the case).
arrangements to allow him to cash in his retirement
benefits while continuing to run the company.” ***
The solicitation of buyers before signing the

agreement was very limited. Just a few days of CHAPTER 19 – ENHANCED SCRUTINY
search by the investment bank. The price (CONT.)
represented a 3.8% premium to the closing price on
Omnicare, Inc. v. NCS Healthcare, Inc. (Del.
February 2, the day Icahn’s first bid was received.
2003, p. 620)
During the go-shop period (one month), 41 buyers
Omnicare was the pearl disputed by NCS and
were contacted.
Genesis. The issue is whether the lockup
“The Merger Agrement grants Icahn two primary agreements were legal. They weren’t. Under
deal protections for allowing its offer to be used as a Unocal, the defensive measures were both defensive
stalking horse: (1) a termination fee payable if Lear and coercive.
accepted a superior proposal from another bidder
NCS was an insolvent Del. Corp. The agreement
and (2) matching rights in the event that a superior
between Genesis was a stock for stock one.
proposal is presented.”
Chairman and CEO of NCS had 65%. The company
Process: formed an independent committee. Genesis
proposed an agreement, but it hated the idea of
1. The Plaintiff’s Revlon Claims. Two being a stalking horse.
fiduciary problems: (1) putting the CEO in
the special committee and (2) the retirement Genesis wanted exclusivity. “[W]anted the
benefits. exclusivity agreement to be the first step towards a
2. About the conflict of interest: “Although I completely locked up transaction that would
do not view this negotiation process as a preclude a higher bid from Omnicare.” The
disaster warranting the issuance of an committee was afraid of losing the deal and
injunction, it is far from ideal and accepted it. After some negotiations, Genesis
unnecessarily raises concerns about the imposed a fast deal.
integrity and skill of those trying to
Process:
represent Lear’s public investors.”
3. To fairly determine whether the defendants 1. Unocal: when a board adopts defensive
breached their Revlon obligations, I must measures in response to a hostile takeover
consider the entirety of their actions in proposal that the board reasonably
attempting to secure the highest price
39
determines is a threat to corporate policy Openlane sell “off-lease” vehicles, and it’s traded
and effectiveness; on the OTC Pink Sheets. Stock for cash transaction.
2. NOT Revlon: NCS did not start an active
bidding process, and the NCS board Shareholders claim that current management is
“abandoned” its efforts to sell the company trying to get entrenched, by negotiating agreements
when it entered into an exclusivity to stay in power. Valuation is this case was
agreement with Genesis; EBITDA multiples of 7.7x to 18.6x. Implied value
3. The standard was BJR, the adoption of of the company ranged from $106.5m. to $256.4m.
defensive measures alone does not trigger They tried to contact other companies to figure out
Revlon. Rather … such devices are buyers, but without success. They finally entered in
properly subject to a Unocal analysis; a merger on Aug. 11, 2011, with KAR. The board
4. Two prong test: (1) directors demonstrate approved and the next day they obtained consent
they had reasonable grounds for believing from the majority of the shareholders.
that a danger to corporate policy and
effectiveness existed, (2) their defensive Shareholders claim that (1) the board breached their
measure was reasonable in relation to the duty by failing to undertake an adequate process;
threat; (2) breached their duty through their disclosure…
5. Conclusion: defensive measures were both
Preliminary injunction standard:
coercive and preclusive (fait accompli);
1. A reasonably probability of success on the
6. A stockholder vote may be nullified by
merits;
wrongful coercion ‘where the board or some
2. That they will suffer irreparable injury if an
other party takes actions which have the
injunction does not issue; and
effect of causing the stockholders to vote in
3. That the balance of the equities favors the
favor of the proposed transaction for some
issuance of the injunction.
reason other than the merits of that
transaction;’ Process:
7. Merger and voting agreements combined
were unenforceable in the case. 1. Whether the board was independent. The
8. Dissent: only deal available. fact that some of the members didn’t receive
golden parachutes wasn’t enough to make
*** them independent. The court didn’t find the
CEO was dominating the board. The court
In Re Openlane, Inc. Shareholders Litigation
found that the entire board was aware of his
(Del. Chancery 2011)
compensation package and that the salary
Important case when the board didn’t contact
was under normal circumstances.
enough people. Impeccable knowledge.
2. Whether the Board failed its duty to secure
Shareholder agreement.
the best value. See below. Despite the fact
Merger between Openlane with Riley, a wholly- the financial analysis was stale (but the
owned subsidiary of Adesa, which in turn is a business didn’t improve) and the process
wholly-owned subsidiary of KAR. Board and wasn’t perfect, it was under the range of
management controls 68.46% of Openlane. The reasonableness. Small company to pay
agreement was enforced and the shareholders lost. investment banks.
40
3. Whether the escrow was ok. Created to recognizable legitimate threat to corporate
cushion liabilities in private companies. policy and effectiveness.
4. Whether the defensive devises were ok. The 2. The defensive response was reasonable in
device was a “lock up.” relation to the threat posed.
a. The Board establishes that the
Duty to secure the best value: “There is no single merger deal protection were not
path that a board must follow in order to maximize coercive or preclusive; then
stockholder value, but directors must follow a path b. Demonstrate that their response was
of reasonableness which leads toward that end.” within a range of reasonable
(Quoted from Smurfit-Stone Container Corp.). responses.
In other words, if the board didn’t employ a Coercive: aimed at forcing upon stockholders a
tradition value maximization tool, such as an (1) management-sponsored alternative to a hostile
auction, a (2) broad market check, or a (3) go- offer. Preclusive if it deprives stockholders of the
shop provision, the board must possess an right to receive all tender offers or precludes a
impeccable knowledge of the company’s business bidder from seeking control by fundamentally
for the Court to determine that is acted reasonably. restricting proxy contests or otherwise.
Standard of impeccable knowledge. Circumstance
of the merger. Omnicare when the board has no interest.
In Omnicare, the Supreme Court the threat
Reasonableness required from directors here is identified by the board at issue was the possibility
significantly more stringent than the rationality of losing the Genesis offer and being left with no
review that characterizes the business judgment comparable alternative transaction. A shareholder
rule. Two key features: voting agreements negotiated as part of a merger
1. A judicial determination regarding the agreement, which guaranteed shareholder approval
adequacy of the decision making process of the merger if put to a vote, couple with a merger
employed by the directors, including the agreement that both lacked a fiduciary out and
information on which the directors based contained a section 251(c) provision requiring the
their decision; and board to submit the merger to a shareholder vote,
2. A judicial examination of the reasonableness constituted a coercive and preclusive defensive
of the directors’ action in light of the device. Fait accompli theory.
circumstances then existing. Here the was a no-solicitation clause (it was useless
Unocal when there is a risk of entrenchment. because shareholders approved anyway), but no
Use of defensive devices: the standard used was shareholders voting (despite the fact the next day
Unocal. The test requires that the Board management voted as shareholders). No
demonstrate that it had reasonable grounds for termination fee.
believing a danger to corporate policy and About the fiduciary out: In Omnicare, the
effectiveness existed. This is essentially a process- Supreme Court held unenforceable a merger
based review: agreement without a fiduciary out, thereby allowing
1. First part. Demonstrate good faith and the board to consider what the Supreme Court
reasonable investigation. Articulate a viewed as a hostile bidder’s superior offer. Hostile
41
bidders are on notice that Delaware courts may no Conclusion: Even assuming that the directors didn’t
enforce a merger agreement that lacks a fiduciary do anything to prepare for the offer or that they
out if they present a board with a superior offer. But didn’t consider conducting a market check, if the
having a fiduciary out is not mandatory. best price is obtained, there was no breach.
*** ***
Lyondell Chemical Co. v. Ryan (Del. 2009)

Shareholder litigation. The court held that (1) the CHAPTER 20 – INTERFERENCE WITH THE
Revlon duty is to maximize the sale price of SHAREHOLDER FRANCHISE
corporation commenced when directors began
Blasius Industries, Inc. v. Atlas Corporation
negotiating sale of corporation and (2) directors did
(Del. Ch., 1988, p. 576 supp)
not fail to act in good faith and thus did no breach
Blasius Acquires a 9% in Atlas and Atlas changed
their fiduciary duty of loyalty.
the amount of directors in its board as a defense.
The board found that the company was in play, but Atlas was a bad guy and the court didn’t like it.
decided to adopt a wait and see approach. It
The Board of Atlas increased the board by two and
eventually ended as a cash merger.
filed the new created positions with their own
The Court discussed if the board action was bad members. The court found no self-interest.
faith. The merger was negotiated and finalized in
“Why the deferential business judgment rule does
kless than one week, during which time the
not apply to board acts taken for the primary
directors met for a total of only seven hours to
purpose of interfering with a stockholder’s vote,
consider the matter. They didn’t press the acquirer
even if taken advisedly and in good faith.” There is
for a better price of conduct a market check.
no per se rule invalidating corporate acts intended
“The problem with the trial court’s analysis is that primarily to thwart effective exercise of the
Revlon duties do not arise simply because a franchise of shareholders, but the board must show
company is ‘in play.’ The duty to seek the best a compelling justification (not found here).
available price applies only when a company
Blasius violating: duty of loyalty violation.
embarks on a transaction – on its own initiate or in
response to an unsolicited offer – that will result in ***
a change of control.” The wait and see was under
BJR. Note on the supplement, p. 585: “When the matter
to be voted on does not touch on issues of
“There is only one Revlon duty – to get the best directorial control, courts will apply the exacting
price for the stockholders at a sale of a Blasius standard sparingly, and only in
company.” circumstances in which self-interested or faithless
fiduciaries act to deprive stockholders of a full and
Since there is no blueprint, there is no obligation to
fair opportunity to participate in the matter and to
take step, so no breach of duty of loyalty if you
thwart what appears to be the will of a majority of
don’t do anything.
the stockholders …. Where such circumstances are
not present, the business judgment rule will
ordinarily apply in recognition of the fact that
42
directors must continue to manage the business and On a shareholders’ meeting, ISS instructed to vote
affair of the corporation, even with respect to on electing 2 MM’s directors, but not giving control
matters that they have place before the stockholders right away. The board then expanded itself to favor
for a vote.” a merger that the board itself preferred.
MM Companies, Inc. v. Liquid Audio (Del.2006) The board timed its actions for the primary
To impede shareholders to vote in the election, the purpose of diminishing the influence of MM’s
board expanded the board from 5 to 7 members, and nominees, if they were elected at the annual
the court found that (1) incumbent board of meeting.
directors had the burden of demonstrating a
compelling justification for expanding the size of its “In Blasius, the Chancellor did not adopt a rule of
membership, and (2) defensive measure was not per se invalidity once a plaintiff has established that
proportionate and reasonable in relation to the threat a board of directors has acted for the primary
posed by the shareholder franchise. purpose of interfering with or impeding the
effective exercise of a shareholder vote. Instead, the
Two situations where the compelling justification Chancellor concluded that such situations required
applies (the shareholders are not given a full and enhanced scrutiny, pursuant to which the board of
fair opportunity to vote effectively): directors ‘bears the heavy burden of demonstrating
a compelling justification for such action.’”
1. Independently, in the absence of a hostile
contest for control; or The court finally understood that there is a degree
2. When there is a defensive measure, the of congruence between the rationale of Blasius
primary purpose of the board’s action is to (compelling justification) and the logical extension
interfere with or impede exercise of of that rationale within the context of the Unocal
shareholder franchise. enhance standard of judicial review.
There is no need to effectively prevent the Process:

shareholders from attaining any success in seating
one or more nominees, rather, the defensive actions 1. Is the board preclusive or coercive? No.
of the board only need to be taken for the primary 2. Is the action proportionate in relation to the
purpose of interfering with or impeding the threat posed?
effectiveness of the stockholder vote in a contested a. The board had the burden of
election for directors. demonstrating a compelling
justification for that action (because
“[T]hat action compromised the essential role of the primary purpose of a board
corporate democracy in maintaining the proper directors’ defensive measure is to
allocation of power between the shareholders and interfere with or impede the effective
the board.” exercise of the shareholder
franchise).
Liquid Audio was receiving incursions from MM
for a merger. Liquid Audio’s board rejected the To invoke the Blasius standard, the only need is
offers. Liquid Audio also had a staggered board. to check if the defensive actions of the board only
need to be taken for the primary purpose of
interfering with or impeding the effectiveness of
43
the stockholder vote in a contested election for Blasius, however, would require disfranchising of
directors. shareholder vote. If there was no evidence of this,
the standard wouldn’t apply. “Blasius standard is
*** invoked only if ‘the primary purpose’ of the board’s
Mercier v. Inter-Tel (Delaware), Inc. (Del. Ch. action is to interfere with or impede exercise of the
2007) (Strine) shareholder franchise.” The Supreme Court of Del.
Shareholder brought action against the Announced that Blasius is so strict a test that it is
consummation of a stockholder-approved merger, “applied rarely.”
alleging the special committee breached its
“The post-Blasius experience has shown that the
fiduciary duties rescheduling the meeting. The court Unocal/Unitrin analytical framework is fully
held: (1) the standard of review is reasonableness
adequate to capture the voting franchise
for actions affecting stockholder votes on mergers;
concerns that animated Blasius, so long as the
(2) the special committee didn’t breach its fiduciary
court applies Unocal with a gimlet eye out for
duty; (3) shareholder didn’t have a reasonable inequitably motivated electoral manipulations or
probability on its absence of full disclosure about
for subjectively well-intentioned board action
the reason for delay. They lost.
that has preclusive or coercive effects.”
The discussion between the standard is between the In MM Companies, Inc. v. Liquid Audio, Inc.
compelling justification standard and the supposedly, the Supreme Court signalized the
reasonableness standard. Blasius was for director election contests or election
Directors should [legitimate objective test]: (1) contests having consequences for corporate control
have the burden of identifying a legitimate [entrenchment or control issues; action taken for
corporate objective; (2) burden of persuasion that the primary purpose of disenfranchising
their motivations were proper and not selfish, (3) stockholders]. Unocal and Blasius would work
show their actions were reasonable in relation to together.
their legitimate objective, and (4) did not preclude “When the primary purpose of a board of directors’
stockholders from exercising their right to vote or defensive measure is to interfere with or impede the
coerce them into voting a particular way. effective exercise of the shareholder franchise in a
The court found that the board acting in good faith, contested election for directors, the board must first
and believing it was in the shareholders’ best demonstrate a compelling justification for such
interest, delaying the meeting for only one month, action as a condition precedent to any judicial
fulfilled its duty under this test. The concern here consideration of reasonableness and
was that no other bidder was around, and by a no proportionately.”
vote (which was never obtained), the deal could be Conclusion: Liquid Audio, however, keep applying
lost. the compelling justification standard, and Strine
The court discusses about which standard it should said it applied this standard.
apply. Under Blasius (Del. Ch. 1988) it should be It was relevant that Inter Tel did not selectively
compelling justification, an extremely heavy announce the record date, “by tipping it to favored
burden. investors.”
44
*** ii. Class action. Shareholders will

have to adapt to statutory stuff.
Chapter 21 – Circon: A Case Study Practical matter not many
shareholders exercise appraisal
CHAPTER 22 – FREEZE-OUT rights. However, entire fairness
TRANSACTIONS you can apply to have class
actions status. Damages on
Final Note About BJR v. EF appraisal, only the difference.
(1) Structure Entire fairness, but there will be
(2) BJR v. EF? applied to EVERY SINGLE
a. Worth it? SHAREHOLDER, not only the
b. BJR: hands-off standard of judicial ones that applied to appraisal. On
review. Allows the defendants of appraisal you at least know how
dismissal at a very early stage. much is going to be around.
Reduce litigation costs. Adverse Rescissory damages: if it’s late to
termination. Get a motion to dismiss undeal the transaction, at least I
or a favorable outcome. Makes want damages that my
defense on the merits easier. proportionate interest in this
c. Entire Fairness: potential personal merger if never occurred. DEL
liability. If there is a breach of never awarded this kind of
fiduciary duty, there can be damages damages. This possibility is not
awarded as well against the around on appraisal.
controller. Entire fairness is a great iii. Short-form merger: NEVER
of litigation risk. Virtually SUBJECT TO ENTIRE
impossible of dismissal at the very FAIRNESS.
beginning. Adverse outcome at trial (3) Enter into agreements with large minority
much higher. Shifting the burden shareholders to be in your side?
certainly helps. Riskier to them, (4) Empower: the special committee?
willing to settle without a trial.
Rarely going to be dismissed. ***
d. In any case you will get appraisal
In re Pure Recourses, Inc., Shareholders
rights. Damages of EF is different
Litigation (Del. Ch. 2002, p. 805 supp, Strine)
from appraisal?
Disclosure documents from Unocal to Pure
i. Injunctive relief. If unfair dealing
Resources were incorrect. Injunction provided to
and monetary won’t provide the
increase information.
remedy, the shareholder will be
entitled with the injunction and Unocal is an independent natural gas and crude oil
could enjoy the transaction. exploration. Unocal wants to eat Pure Resources.
Injunctive relief is only permitted Nhum nhum! They planned to start a tender offer
on entire fairness, but not on and informed the board of this.
injunctive relief.
45
Pure Resources formed a independent committee misrepresentation, or other item of misconduct to

without any power. The only power was to “study demonstrate the unfairness of the merger terms to
the offer, negotiate it, and make a recommendation the minority.”
on behalf of Pure in the required 14D-9.” Finally,
the special committee filed the 14D-9 saying no to Remember: independent committee only shifts the
the offer. The court analyzed this absence of power burden of proving entire fairness.
but didn’t decide on the subject (whether the Cash-out merger between UOP and its majority
independent committee should have the power to owned, the Signal Companies, Inc. After a few
use defensive devices). transactions, Signal became a 50.5% shareholder of
800-pound gorilla quote in p. 810. The court UOP. Price wasn’t fair, plaintiffs received
discusses the prisoners dilemma that shareholders rescissory damages.
may face if they decide to not sell their shares. In Signal them decided to buy the rest. They reached
Solomon v. Pathe Communications Corp. the court an agreement and decided to condition the merger
found that there is no entire fairness in a short-form to a majority of the minority vote (in fact, the 2/3 of
merger. the outstanding shares should approve the deal).
In Lynch, in order to address the prisorner’s One problem: the discussions were “hurried,” and
dilemma problem, our law should consider an the proxy didn’t disclose that. At the end, 76.2% of
acquisition tender offer by a controlling shareholder UOP’s outstanding shares approved the merger,
non-coercive only when: while only 2.2% opposed it.
1. It’s subject to a non-waivable majority of Conflicts of interest were considered a breach of

the minority tender condition; their duties. Some directors were also members of
2. The controlling stockholder promises to Signal and they disclosed information to Signal.
consummate a prompt § 253 merger at the The court wanted an independent committee.
same price if it obtains more than 90% of Duty of candor:
the shares; and A duty of complete candor is required to inform the
3. The controlling stockholder has made no minority shareholders. Whether defendants had
retributive threats. disclosed all information in their possession
The court found that the offer was coercive only germane to the transaction in issue. Germane:
information such as a reasonable shareholder would
because it includes within the definition of the
consider important in deciding whether to sell or
minority those stockholders who affiliated with
Unocal as directors and officers. retain stock. Completeness, not adequacy, is both
the norm and the mandate.
***
Entire fairness:
Weinberger v. UOP, Inc. (Del. 1983, Moore, p. 1. Fair dealing (when the transaction was time,
159) how it was initiated, structured, negotiated,
disclosed to the directors, and how the
BL Rule, Cash-out mergers: approvals of the directors and the
“[T]he plaintiff in a suit challenging a cash-out stockholders were obtained, imposed not
merger must allege specific acts of fraud,
only to officers, but to persons who are
46
nonetheless privy to matters of interest or ***

significance to their company), and
2. Fair price (relates to the economic and After Weinberger, we know that the entire fairness
financial considerations of the proposed test requires the controlling shareholder to satisfy a
merger, including all relevant factors: assets, two-pronged test. Results of the decision:
market value, earnings, future prospects, and 1. Eliminated the ability to challenge a merger
any other elements that affect the intrinsic or that it was not undertaken for a valid
inherent value of a company’s stock). business purpose;
“Individuals who act in a dual capacity as directors 2. Appraisal remedy should ordinarily be the
of two corporations, one of whom is parent and the exclusive remedy available to a shareholder
other subsidiary, owe the same duty of good objective a merger; and
management to both corporations, and in the 3. No more Delaware-block, any valuation is
absence of an independent negotiating structure, or cool.
the directors’ total abstention from any participation ***
in the matter, this duty is to be exercised in light of
what is best for both companies. The record How to avoid Weinberger (entire fairness)?
demonstrates that Signal “has not met this 1. Structuring a transaction as a long-form
obligation.” merger will be subject to review under entire
fairness standard set forth in Weinberger.
Minority was denied the information that the parent 2. No duty of entire fairness in short-form
thought that even $24 was a good deal (they closed mergers (90%). Glassman (p. 401-402).
at $21). Without a candid disclosure of the material 3. Then, to avoid entire fairness, the path is
facts, the majority of the minority vote, approving called Siliconix/Pure Resources
the merger is meaningless. transaction. Under this second approach,
Remedies: plaintiff didn’t ask for an appraisal, but the controlling shareholder makes a first-
rescissory damages. “The appraisal remedy we step tender offer followed by a second-
approve may not be adequate in certain cases, step short-form merger.
particularly where fraud, misrepresentation, self- Structuring a Siliconix/Pure Resources
dealing, deliberate waste of corporate assets, or Transaction:
gross and palpable overreaching are involved. 1. The front-end tender offer is subject to a
Under such circumstances, the Chancellor’s powers non-waiveable majority of the minority
are complete to fashion any form of equitable and tender condition;
monetary relief as may be appropriate, including 2. The controlling shareholder agrees to
rescissory damages.” complete the back-end, short form merger at
Undoing the transaction? Since it is apparent that the same price as soon as it obtains 90
hits long completed transaction is too involved to percent of the shares;
undo, and in view of the Chancellor’s discretion, the 3. The controlling shareholder does not make
award, if any, should be in the form of monetary any retributive threats; and
damages based upon entire fairness standards, i.e., 4. The independent directors are given time to
fair dealing and fair price. hire their own advisors, make
47
recommendations to the minority Chapter 24 – The Wachovia Acquisition – a Case

shareholders, and disclose all necessary Study
information to the minority shareholders so
that they can make an informed judgment.
CHAPTER 25 – THE ACQUISITION
Result: as to those shareholders who made the AGREEMENT
‘informed decision’ not to tender into the first-step Merger v. Stock Agreement (p. 317).
tender offer made by the controlling shareholder,
1. Introductory provisions
they would presumably be able to challenge the
2. Description of the structure of the
adequacy of the price offered by asserting their
transaction
appraisal rights in connection with the second-step
3. Terms of the purchase price and the
short form merger. However, since there is no entire
payment
fairness, the only challenge that the minority
4. Representations and Warranties
shareholder can now bring is to challenge the
5. Pre-Closing Covenants
adequacy of the price offered by the controlling
6. Closing on the Transaction
shareholder.
7. Termination
*** 8. Indemnification
In re CNX Gas Corporation Shareholders Most negotiated Reps & Warranties.

Litigation (Del. Ch. 2010, Laster)
1. They are disclosure tools.
Freeze-out tender offer following by a short-form
2. They are used as risk allocation tools.
merger. No injunction was allowed because “there
3. Must be true not only as of the date that the
are no viable disclosure claims, and the tender offer
parties signed the agreement but also must
is not coercive” and because of “any harm to the
be true and accurate as of the date of closing
putative class can be remedied through a post-
on the agreement.
closing damages action.” Standard is entire
4. Bring-down: when reps & warranties are
fairness.
the basis for a closing condition.
When BJR will apply to a short-form merger: 5. They are basis for indemnification.
“[T]he business judgment rule applies when a 6. A rep & warranty not being ok gives the
freeze-out is conditioned on both the affirmative right to walk-away.
recommendation of a special committee and the 7. “Bidder wants to impose a measure of
approval of a majority of the unaffiliated responsibility and accountability on Target
stockholders.” Co. itself, even as to its audited financial
statements:
In the case, entire fairness was the standard
because the board didn’t recommend the Financial statements:
transaction.
1. Keyed as true, correct, and complete.
*** 2. SOX: requires that managers of a publicly
traded company to certify that the
Chapter 23 – Letter of Intent, Confidentiality company’s financial statements are a fair
Agreement and Consideration
48
representation of the company and its CHAPTER 26 – THE ACQUISITION

financial affairs. AGREEMENT (CONT.) AND DUE
DILIGENCE
Materiality qualifier:
MAC & MAE clauses.
1. Financial statements fairly present in all Best target clause: the company is in compliance
material respects the financial condition of with all laws except as to those laws whether the
Target Co. and its results from operation. failure to comply would not materially and
2. Auditor typically reads: “In our opinion, the adversely affect the company’s business.
audited financial statements fairly present, in
all material respects, the financial condition In re IBP, Inc. Shareholders Litigation (Del. Ch.
of Target Co.” 2001, Strine, p. 336)
3. Double materiality qualifier? GAAP’s IBP seeks to compel the merger between itself and
provisions already include a materiality Tyson Foods, Inc. Specific performance was
standard. Some negotiations leave the granted.
materiality qualifier to the unaudited parts.
4. Horse trading: Target could try to negotiate IBP-Tyson agreement was the result of an intensive
this materiality standards in exchange for the bidding process. After signing the merger
indemnity provisions. agreement (Jan. 1, 2011) Tyson trumpeted the value
of the merger and indicated that it was fully aware
5. SOX requires office and director
certification. Post-Enron business climate of the risk that attended the cyclical nature of IBP’s
creates a great deal of skepticism about business. Negotiations started at $22.25 per share
accepting financial statements at face value and ended at $30 per share.
and relying on them without any further Because of the dismal results of the company,
inquiry or probing and without the benefit of Tyson didn’t want to go through the merger
any additional contractual protections. (“buyer’s regret”). The company tried to walk-
*** away through a MAC clause.
Three approaches by courts: Evaluation Material was crafted to include what

the company’s agents and employees crafted. No
(1) LOI – enforceable binding contract reliance on oral statements.
(2) LOI – contract creating an obligation to
negotiatiate in good faith “For purposes of this Agreement, Evaluation
(3) LOI – mere term sheet, basis for discussion Material shall mean all information, data, reports,
analyses, compilations, studies, interpretations,
*** projections, forecasts, records, and other materials
(whether prepared by the Company, its agent or
advisors or otherwise), regardless of the form of
communications, that contain or otherwise reflect
information concerning the Company that we or our
Representatives may be provided by or on behalf of
the Company or its agents or advisors in the course
of our evaluation for a possible transaction.”
49
Due diligence flagged several items. The problem performance are evidence of a Material Adverse
was with a subsidiary, DFG, that basically had no Effect.
control about anything. Tyson was previously
informed by the fraud on DFG and it always had What is necessary to enforce:
access to the information. 1. The Merger Agreement is a valid contract
Section 5.11. No undisclosed material liabilities. between the parties;
Except as set forth I Schedule 5.11 the Company 2. IBP has substantially performed under the
10-K or the Company 10-Qs, there are no liabilities contract and is willing and able to perform
of the Company of any Subsidiary of any kind its remaining obligations;
whatsoever, whether accrued, contingent, absolute, 3. Tyson is able to perform its obligations; and
determined, determinable or otherwise, and there is 4. IBP has no adequate remedy at law.
no existing condition, situations, or set of MAE: “any event, occurrence, or development of a
circumstances which could reasonably be expected state of circumstances or facts which has had or
to result in such a liability, other than: reasonably could be expected to have a Material
(a) liabilities disclosed or provided for in the Adverse Effect on the condition (financial or
Balance Sheet; otherwise), business, assets, liabilities or results of
operations of IBP and its Subsidiaries taken as a
(b) liabilities incurred in the ordinary course of whole.”
business consistent with past practice since the
Balance Sheet Date or as otherwise specifically The Court saw the five-year earnings from
contemplated by this Agreement; operations and earnings per share and checked that
the company was volatile.
(c) liabilities under this agreement;
To be an MAE, a provision is best read as a
(d) other liabilities which individually or in the backstop protecting the acquirer from the
aggregate do not and could not reasonably be occurrence of unknown events that substantially
expected to have a Material Adverse Effect. threaten the overall earnings potential of the target
in a durationally significant manner. A short-term
Schedule 5.11. No undisclosed liabilities. Except as hiccup in earnings should not suffice. (p. 353)
to those potential liabilities disclosed … the
Injunction against IBP in the Department of Labor 1. NOT MAE: Tender offeror who was to
Wage, and Hour litigation …, and any further purchase 20% of Bear Stearns could not rely
liabilities (in addition to IBP’s restatement of on the MAC clause to avoid contract despite
earnings in its 3rd Quarter 2000) associated with $100m. loss suffered by Bear Stearns on
certain improper practices at DFG Foods, a Black Monday, Oct. 19, 1997, and the fact
subsidiary of IBP, there are none. that Bear Stearns suffered a $48m. quarterly
loss, its first in history. The buyer knew that
Tyson sues IBP claiming that they relied in fake Bear Stearns was in a volatile cyclical
information. (1) Tyson argues that IBP breached its business. In Bear Stearns Co.
contractual representations regarding the Warranted 2. MAC: Pan Am airlines suffered sharp
Financials, (2) and that DFG Impairment Charge as decline in booking over a three-month
well as IBP’s disappointing first quarter 2001
50
period that was shocking to its management. related to reps and warranties.
In Pan Am Corp.. Sometimes not all. Until you reach
3. MAC: Two merger partners agreed that one this level of losses, you’re not
partner has suffered a material adverse entitled to any recovery from the
change when its full year results showed a seller at all. Baskets can be
new loss of over $6.3m., compared to a instructed in (1) thresholds (dollar
$2.1m. profit a year before, and steep one / tipping baskets, you pay only if
operating losses due to plant disclose. In you reach, but once you reach, we’re
Katz. going to pay you all) or (2)
deductibles (excess liabilities
Conclusion in this case: IBP has not suffered a baskets, not pay until you cross the
Material Adverse Effect and is entitled to spefici amount, once you cross, we’ll pay
performance. after this amount).
*** 2) Mini-baskets or de minimis thresholds (can’t
make a claim on minimal stuff)
Indemnification Provisions 3) Caps: buyers will be assured of having
Standard: will grant Bidder an express right of access to the money, generally applies only
recovery for all damages, directly or indirectly, to breachs of reps and warranties (and also
resulting from or caused by Target’s breach of one specific caps). E.g. 5% of the purchase
(or more) of the representations it made in the price.
acquisition agreement that Bidder did not discover
until after closing on the agreement and taking over Equitable relief (specific performance) or
Target’s business. indemnification rights only?
Baskets: The idea of a basket is that a certain dollar

amount of claims must accumulate (in the “basket”) ***
before Bidder triggers rights to be indemnified by
the Target (or, more likely, the sellers of Target).
CHAPTER 27 – THE ROHM AND HAAS
Due Diligence Procedures: ACQUISITION – A CASE STUDY
Seller Risks:
1. To learn about the business;
2. To discover significant problems and 1. Buyer won’t / can’t pay
material liabilities; and a. Financing
3. To assist the parties in framing the terms of 2. Timing to close
the representations. 3. Adverse effects (between signing and close)
4. Post-closing remedy (buyer walking away)
***
CN:
Buyer’s Risks:
1) Baskets
a. Certain amount of losses before 1. Shareholder approval
indemnification is available. Limits 2. Getting approvals (such as antitrust)
51
3. Superior proposal and losing the deal

4. Target losses, change in the economics of
the deal
5. Macroeconomic changes affect
***
52

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Arthur S. Rodrigues. Mergers & Acquisitions Outline. Winter/2012.

Hollinger Inc. v. Hollinger Intl., Inc. (Del. Ch.

Statutory Mergers ............................................ 5 Chapter 6 – Kohler Co.: A Case Study (Valuation)

Gimbel test:.................................................... 10 Schedule 14D-9 (ten business days after raider)

Section 338(h)(10) Election: ............................. 19 Lock-Up Options: .......................................... 31

Tax-Free Transactions: ...................................... 20 Paramount Communications, Inc. v. Time, Inc.

IX. Agency Action ......................................... 24 In re The Topps Company Shareholders

Lyondell Chemical Co. v. Ryan (Del. 2009)..... 42

g. Industry shocks (like de- the issuance of the common stock or

*** Appraisal rights: there is no appraisal rights for

c. Creditor claims are assumed by A corp; however A Corp board approval is

Hollinger Inc. v. Hollinger Intl., Inc. (Del. Ch.

discount or discount for lack of marketability, so TEV=12k

Company A, Debt 2,250, Cash 250 D = Debt

Kd Cost of debt Kd=0.054 (5.4%)

Ke Cost of equity Ke=0.045 X 0.9(0.075)

Interest on debt is tax deductible.

You don’t have to know this formula (remember, 7. No minority discount!

Everything will be subject to negotiation. NOL 2. Seller’s basis in property received in

Corp, followed by a c. All of T Corp’s tax attributes (e.g.

1. Acquisition of T Corp (nonsubsidiary) is Section 338(h)(10) Election:

Tax-Free Transactions: stock and “boot;” any

ownership of non-voting stock) of T ii. The acquisition would

f. T Corp’s liquidation as part of the significant portion of T Corp’s business after

Notes: FMV = fair market value

1. Continuity of ownership interest – ***

Premerger Notification Program B. Acquiring and Acquired

If not fit to an exemption, and it has been

X. Failure to File chairman and CEO, chose a proposed price of $55

The trial court found that this selective exchange

*** 1995: Del. SC: In Re Santa Fe Pacific, Revlon

the directors allowed considerations other 2. Absent a limited set of circumstances, as

*** Without limiting, a company is in Revlon mode:

Lock-Up Options: 1. When a corporation initiates an active

*** In re Airgas Inc. Shareholder Litigation (Del.

As much as a company doesn’t abandon its long

The solicitation of buyers before signing the

Lyondell Chemical Co. v. Ryan (Del. 2009)

There is no need to effectively prevent the Process:

*** ii. Class action. Shareholders will

Pure Resources formed a independent committee misrepresentation, or other item of misconduct to

1. It’s subject to a non-waivable majority of Conflicts of interest were considered a breach of

nonetheless privy to matters of interest or ***

recommendations to the minority Chapter 24 – The Wachovia Acquisition – a Case

In re CNX Gas Corporation Shareholders Most negotiated Reps & Warranties.

representation of the company and its CHAPTER 26 – THE ACQUISITION

Three approaches by courts: Evaluation Material was crafted to include what

Baskets: The idea of a basket is that a certain dollar

3. Superior proposal and losing the deal

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