§2: Purchase of Assets

• The acquiring corporation extends its ownership and control over the physical assets of another company.

• Acquiring corporation shareholders do not need to approve:

  • Unless acquiring corporation is paying for assets with its own stock and there is not enough stock authorized or

  • An acquiring corporation sells on a national exchange, is paying with its own stock, and newly issued stock = 20% or more than the outstanding shares.

Potential Liability in Purchase of Assets

• Acquiring corporation is not liable for liabilities of selling corporation unless:

  • Acquiring corporation impliedly or expressly assumes the liabilities.

  • Sale amounts to what is really a merger or consolidation.

  • Purchaser continues the seller’s business and retains the same personnel. à

  • Sale is fraudulently executed to escape liability.

  • The selling corporation needs both board and shareholder approval.

§ 3: Purchase of Stock

• Common alternative to merger or consolidation is the purchase of a controlling interest (up to 51%) of a “target” corporation’s stock (called a “takeover”) giving the purchaser corporation controlling interest in the target.

• The aggressor deals entirely with the target’s shareholders.

Tender Offers

• Tender Offers.

  • A publicly advertised offer addressed to all shareholders of the target is called a tender offer.

  • Tender offer is usually higher than market value per share but conditioned on the acquisition of a certain % of shares

    • Can be in exchange for aggressor's stock.

    • The SEC strictly regulates tender offers.

Tender Offer Terminology

Term	Definition
Crown Jewel	Management makes company less attractive by selling company’s most valuable asset (crown jewel).
Golden Parachute	If takeover successful, top management “bails out” of the target corporation with forced “retirement” benefits.
Greenmail	To regain control, target company may pay higher-than-market price to repurchase the stock.
Scorched Earth	Target company sells off assets or divisions or takes out loans to make it unattractive to hostile takeover.
White Knight	Target corporation solicits merger with 3rd party, which is a better match. 3rd party “rescues” the target.

Target’s Responses

• Directors of a corporation may consider the takeover to be friendly or unfriendly to the present management.

  • If directors consider it unfriendly, they may want to resist the hostile takeover.

  • Directors may seek an injunction against acquiring corporation on grounds that the attempted takeover violates antitrust laws.

  • But directors must not breach their fiduciary duty to corporation in resistance.

§ 4: Termination

• Termination of a corporation, like a partnership, consists of two phases:

  • Dissolution (voluntary or involuntary); and

  • Liquidation.