Takeovers
What does the SEC require?
Disclosure
If a corporation has either (1) $10 mil in assets or (2) 2,000 shareholders then you must disclose information.
Is this a state or federal law?
State
If a corporation files for bankruptcy who gets paid first?
First - Creditors,
Second - Preferred Shareholders
Third - Common Shareholders get whatever's left
What are the two fairness categories?
1) Fair Dealing
2) Fair Price
How do you stop corporate sociopaths?
1) Using the legislature OR
2) Board of directors
What is the most direct form of a merger?
Straight Merger
-Federally: Disclose all information to shareholders.
-States: Both companies have to vote "yes"
Why did the first generation of this legislation fail?
There was a huge supremacy clause issue because it conflicted with the Williams Act of disclosure.
What theory of representation does WI follow?
Entity Theory
True or False: Fair dealing is when all material facts were given and there was no rush in the process.
True
The officers (CEO, CFO, CMO) are using the board as a rubberstamp by telling the board what to do.
- Board is supposed to be overseeing the officers
Creating a subsidiary and merging the target company into it.
- board's decision to form shareholder, its a way to avoid shareholder voting
True or False: Anti-takeover legislation only applies to corporations within the same state?
True
Describe the Entity Theory?
A lawyer represents the entity NOT the incorporators, directors or employees.
Case Facts: Danforth
- WI Supreme Court that the lawyer was not Danforth's lawyer, the lawyer was the corporations.
Fallone: "The court missed the fundamental point of looking into what was in the mind of the shareholder at the time of the incorporation."
1) If it was approved in advance by disinterested and independent board majority
2) approved after (ratified) by shareholders
3) fair to corporation (fair dealing/fair price)
What are questions to determine information flow?
1) What are the decisions the board makes regularly?
- compensation, performance reviews, future benchmarks
2) What information does the board need to make these decisions?
3) how will the information get to the board?
Can a merger happen by buying up all of the assets of another?
Yes, the board can bypass the shareholders by buying.
What changed between the first legislation and the second?
The Supreme Court said this didn't interfere with the Williams Act because the corporations were within the same 'boarder'
What theory does Fallone prefer and Why?
Aggregate Theory of Representation because it leaves the clients in control.
How do you undercut this conflict of interest statute?
Either (1) Prove the parties weren't disinterested or independent OR (2) prove there was not full disclosure of material fact.
How do board members have power?
- Involved in collective decision-making
- Official Meeting with a vote
- Notice given in advance
- Real time attendance
Why is this legislation considered a huge burden?
The acquiring corporation cannot merge with the target corporation until 3 years later.
Yes, by telling them upfront it fulfills the ethical duty if they consent.
The statute removes the judges discretion to look at relevant facts of the case as long as it hit one of the 3 requirements.
How should the board be composed?
Must be independent from top officers and must represent company as a whole.
- women, men, ethnicity