1.

Mergers & Acquisitions

i. For statutory mergers, sales of assets or consolidations:

 If you want to know whether approval of the board and/or

the shareholders is required, ____check the statutes.

a. In asset deals, _a majority of the board of the

acquirer present at a meeting where quorum is
present needs to approve the deal, but no
shareholder vote is required on the acquirer side
(unless the consideration in the deal is stock and
shareholders need to vote to increase the number of
authorized shares). On the target side, where the
sale is of “all or substantially all” of the assets of
target, __a majority of the directors present at a
meeting where quorum is present need to approve
the deal, and also _a majority of outstanding
shares__________________ _______________.

b. In mergers, __________________ of the directors

of the acquirer present at a meeting where quorum
is present need to approve the deal. A majority of
the shareholders of the acquirer need to approve the
deal, unless a statutory exception applies, like in
Delaware where acquirer shareholder approval is
not required if the shares issued as consideration in
the merger do not exceed 20% of the shares
outstanding before the merger. On the target side,
_a_majority________________ of the directors
present at a meeting where quorum is present and
a_majority_________________ of the outstanding
shares of the target need to approve the merger.

 If you want to know whether appraisal rights (also known

as dissenters’ rights) attach, check the statute.

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 a. In Delaware, appraisal rights are only available in
merger transactions. In mergers, appraisal rights
only attach if a shareholder is a “_dissenting
shareholders___,” meaning they voted against or
abstained from voting on the merger. Appraisal
rights are available to (i) dissenting shareholders of
the merging company; and also to (ii) dissenting
shareholders of the surviving company (except in
the case where shareholders of the surviving
company do not vote on the merger) – see statute
for other exceptions.

ii. For sales of shares by individual shareholders, _no vote_________

of the board of the target directors and _no overall vote_______ of
the target shareholders is required absent a written agreement to
the contrary – even if all shareholders elect to sell their shares and
the result is a change in control of the company. Similarly, no
appraisal rights attach. Instead, each shareholder gets to decide on
their own whether or not to sell.

iii. Freeze-Out Mergers

 A “freeze-out”, or “squeeze-out”, or “cash-out” merger is

when a controlling block of shareholders forces minority
shareholders out by causing a merger that results in a cash
payment to the minority.

 Some jurisdictions require a ____legitimate business

purpose________ before they allow the minority to be
cashed out. Eliminating transaction and litigation costs
associated with large groupings of shareholders is generally
considered a legitimate business purpose.

 In Delaware, they quickly jettisoned the business purpose

test in favor of ____an overall fairness_____ test inquiring
as to fair dealing and fair price. Fair dealing embraces
questions of how the transaction was timed, how it was

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 initiated, how it was negotiated, how it was structured, how
it was disclosed to shareholders and directors and how
approvals of the board and shareholders were obtained.

 If a public company is cashing out shareholders such that

the company will no longer be publicly-owned, we call that
transaction a “_going private____” transaction. Some
going private transactions involve the controlling
shareholder squeezing out the minority (which is our focus
in this course), but some “friendly” going private
transactions are conducted by a third party and all
shareholders are being cashed out.

 A going private transaction in which a controlling

shareholder is cashing out the minority can avoid the entire
fairness test and be protected by _business judgment rule_
if in the transaction:

a. the controller conditions the procession of the

transaction on the approval of both a Special
Committee and a majority of the minority
stockholders; AND

b. the Special Committee is independent; AND

c. the Special Committee is empowered to freely

select its own advisors and to say no definitively;
AND

d. the Special Committee meets its duty of care in

negotiating a fair price; AND

e. the vote of the minority is informed; AND

f. there is no coercion of the minority

 To show that a director is not independent, plaintiffs must

demonstrate that a director is beholden to the controlling
party or is so under the controller’s influence that he or she
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can’t exercise independent discretion. The director’s
connections to the controlling person must be material,
which is to say sufficiently substantial that the director
cannot objectively discharge his or her fiduciary duties.

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