Deck 38: Corporate Acquisitions and Multinational Corporations

Question 1

The articles of incorporation or corporate bylaws can require the approval of a surpramajority to approve a merger.

Answer 1

True

Question 2

A shareholder may present an issue on a proxy for a vote by the shareholders only if the management agrees with the proposal.

Answer 2

False

Question 3

The board of directors may sell most of the corporation's assets without shareholder approval.

Answer 3

False

Question 4

Most shareholder resolutions have a good chance of being enacted because large-scale investors usually support management.

Question 5

The dissenting shareholder appraisal right allows a shareholder to request appraisal of the shares to be acquired in a merger,and the tender offer price will be adjusted based on the appraisal.

Question 6

Ordinarily,a merger requires approval of both boards of directors and the shareholders of both corporations.

Question 7

In a merger,the shareholders of the merged corporation always receive stock of the surviving corporation.

Question 8

A shareholder must be notified of the existence of his or her appraisal rights before a transaction such as a merger can be voted on.

Question 9

A short-form merger is a simplified form of merger that can be used so long as more than 90 percent of the shareholders of both corporations approve of the transaction in advance.

Question 10

A shareholder exercising her appraisal right can petition the court to determine the value of shares if she believes that the corporation has set the value too low.

Question 11

In a share exchange,the separate legal existence of one of the corporations ceases.

Question 12

Corporate shareholders do not have the right to vote on mergers and charter amendments.

Question 13

A proxy holder may be a director or officer of the corporation.

Question 14

When proxies are solicited,each issue must be able to be voted on separately.

Question 15

If a group desires to solicit proxies to oppose a management action,management has the choice of mailing the proxy materials for the dissenting group or providing the dissenting group with a list of shareholders.

Question 16

A shareholder loses the ability to exercise the appraisal right by voting in favor of the proposed action.

Question 17

A copy of the proxy,the proxy statement and all other solicitation materials must be filed with the SEC at least 30 days before materials are sent to shareholders.

Question 18

If the management of a company desires to sell most of the assets of the business outside the regular course of business,the board of directors must recommend this action and the shareholders must vote to approve it.

Question 19

Shareholders desiring to communicate with other shareholders through mass mailing must file the communication with the SEC only if the shareholder is seeking a proxy as part of the communication.

Question 20

The Securities and Exchange Commission has no authority to regulate the solicitations of proxies.

Question 21

In order for a proxy to become valid,the shareholder must:

A) complete a written proxy document and file it with the SEC
B) complete a written proxy document,file it with the SEC,and receive the appropriate approval from the SEC
C) complete a written proxy document and deliver it to the proxy holder
D) complete a written proxy document and deliver it to the corporation
E) reach agreement with the proxy holder,but no written documentation is required

Question 22

The Williams Act requires that tender offers be open at least 20 days.

Question 23

A proxy statement must include information about which of the following?

A) who is soliciting the proxy and the matter for which the proxy is being solicited
B) who is soliciting the proxy and the estimated likelihood that the matter will be approved
C) who is soliciting the proxy and the number of proxies already executed on the matter
D) who is soliciting the proxy and pro forma financial statements assuming that the matter for which the proxy is sought is approved

Question 24

The term greenmail refers to the agreement of the tender offeror to abandon its tender offer and not purchase any additional stock.

Question 25

Federal law requires that the target company be notified of a tender offer before the offer is made.

Question 26

Shareholders are not allowed to make individual decisions whether to sell their shares to the tender offeror.

Question 27

The pro-rata rule holds that the shares must be purchased on a pro-rata basis if too many shares are tendered.

Question 28

When a company is the target of a hostile takeover,it cannot issue additional stock simply to make the takeover more expensive for the acquiring company.

Question 29

The board of directors has a fiduciary duty to shareholders in taking action relative to a hostile takeover.

Question 30

If management desires to solicit proxies from shareholders,it must:

A) file the proposed proxy,proxy statement,and other solicitation material with the SEC and obtain SEC approval prior to distributing the solicitation
B) file the proposed proxy,proxy statement,and other solicitation material with the SEC at least 30 days in advance of the distribution
C) file the proposed proxy,proxy statement,and other solicitation material with the SEC at least 10 days in advance of the distribution
D) file the proposed proxy,proxy statement,and other solicitation material with the SEC at least 10 days in advance,but only if financial statements will be distributed
E) not file anything with the SEC unless the SEC receives complaints about the materials that are distributed

Question 31

The purpose of a proxy is to:

A) allow a shareholder to transfer shares to another
B) allow a shareholder to place shares in trust
C) allow a shareholder to assign her right to vote
D) allow a shareholder to assign her dividends to another
E) initiate a tender offer

Question 32

The fair price rule in the Williams Act requires that tender offers be made for a fair price.

Question 33

Which of the following is not a possible consequence of including fraudulent information in a proxy solicitation?

A) criminal action initiated by the justice department
B) fines imposed on shareholders who granted proxies
C) civil action by the Securities and Exchange Commission
D) an order requiring a new election on the matter for which proxies were sought
E) a suit by an injured shareholder for damages from the wrongdoer

Question 34

State antitakeover statutes became unconstitutional once the Williams Act regulated using federal law in this area.

Question 35

The business judgment rule protects the decisions of the board of directors in situations where it acts in good faith that the action taken was in the best interests of the corporation and its shareholders.

Question 36

The Williams Act provides that if fraud is committed,both civil and criminal charges may be brought.

Question 37

A shareholder's proxy can be granted to:

A) other shareholders only
B) officers only
C) officers or directors only
D) shareholders who are also officers or directors
E) anyone

Question 38

A poison pill refers to a target company in a hostile takeover selling off valuable pieces of itself to make itself less attractive to the potential buyer.

Question 39

Solicitation of proxies is regulated under:

A) the Securities Act of 1933
B) the Securities Exchange Act of 1934
C) the Williams Act
D) the Proxy Solicitation Act of 1968
E) the Uniform Commercial Code

Question 40

Once a shareholder has tendered his or her shares,he or she may not withdraw them before the closing of the tender offer.

Question 41

Which of the following best describes a merger?

A) Two corporations jointly purchase a third corporation and operate it as a joint venture.
B) Two corporations are combined to form a new third corporation,and the original two corporations cease to exist.
C) Two corporations are combined,with one of the original corporations surviving and the other ceasing to exist.
D) One corporation acquires all of the shares of a second corporation,with both corporations retaining their separate legal existence,the second a subsidiary of the first.
E) One corporation sells substantially all of its assets to a second corporation,with both corporations retaining their separate legal existence.

Question 42

In a short-form merger,which approvals are needed?

A) Votes by both boards of directors,but shareholders need not approve.
B) Vote by the board of directors of the surviving corporation,and for the corporation that does not survive,recommendation by the board of directors and vote by the shareholders.
C) Vote by the board of directors of the surviving corporation.
D) For both corporations,a vote by the shareholders,but no action by the board of directors.
E) No approvals are needed by the surviving corporation,and for the corporation that does not survive,recommendation by the board of directors and vote by the shareholders.

Question 43

In order to exercise the appraisal right where a shareholder is opposed to a merger,the shareholder must:

A) give the corporation notice of demanding cash payment for the shares,with the notice given prior to the vote on the matter
B) notify the corporation of the amount that the shareholder is demanding as cash payment for the shares
C) not vote in favor of the proposed merger
D) A and C only

Question 44

Which of the following is not true about tender offers?

A) The offer must remain open at least 20 business days from the commencement of the offer.
B) The SEC must be notified of the terms of a tender offer at least 10 days before it is made.
C) If the offeror increases the tender price,that higher price must be paid even to those who already accepted the offer at the earlier,lower price.
D) Any increase in the price offered or the maximum number of shares that the offeror will take requires that the effective time of the offer be extended at least 10 days.
E) There is no appraisal right for persons who do not want to accept the offer.

Question 45

A transaction in which two corporations combine such that afterwards only one of them still exists and owns all the assets previously owned by either corporation is called a:

A) merger
B) tender offer
C) purchase of assets
D) share exchange

Question 46

What is a tender offer?

A) It is an offer made directly to the shareholders of a corporation for those shareholders' shares.
B) It is an offer made directly to the board of directors of the corporation to be acquired.
C) It is an offer made by the use of proxies granted by the shareholders of the corporation to be acquired.
D) It is an offer to acquire another corporation that has been approved by the Securities and Exchange Commission prior to the making of the offer.

Question 47

In determining whether antitakeover tactics are legal,the management must show that the actions taken were reasonable in relation to the threat posed,and that there was a danger to:

A) corporate policy and effectiveness
B) the best interests of the corporation and its shareholders
C) the national economy
D) Both A and B must be shown.
E) Both A and C must be shown.

Question 48

What is required in order for a merger to be conducted under the short-form merger procedure?

A) An increase of less than 20 percent in the number of outstanding shares of the surviving corporation is required.
B) Agreement by both boards of directors to use the short-form procedure is required.
C) Approval by the Securities and Exchange Commission to use the short-form procedure is required.
D) Ownership by the surviving parent corporation of at least 90 percent of the shares of the nonsurviving (subsidiary) corporation prior to the merger is required.
E) The sale,prior to the merger,by the nonsurviving corporation of all its noncash assets is required.

Question 49

Which of the following best describes a share exchange?

A) Two corporations jointly purchase a third corporation and operate it as a joint venture.
B) Two corporations are combined to form a new third corporation,and the original two corporations cease to exist.
C) Two corporations are combined,with one of the original corporations surviving and the other ceasing to exist.
D) One corporation acquires all of the shares of a second corporation,with both corporations retaining their separate legal existence,the second a subsidiary of the first.
E) One corporation sells substantially all of its assets to a second corporation,with both corporations retaining their separate legal existence.

Question 50

Which of the following corporate transactions requires the approval of a majority of the shareholders of the corporation planning to undertake the transaction?

A) merger
B) tender offer
C) sale of assets in the normal course of business
D) A,B,and C

Question 51

When the management of the target corporation of a tender offer opposes the tender offer,it can:

A) purchase the shares of its shareholders as treasury stock,but little more
B) petition the Securities and Exchange Commission to have the offer voided
C) exercise its appraisal rights
D) petition the board of directors to adopt a resolution prohibiting sale by the shareholders to the entity who made the tender offer
E) none of the above

Question 52

In an ordinary merger,if the number of voting shares increases by 20 percent or less,this eliminates which needed approvals when compared to ordinary mergers where the number of shares increases by more than 20 percent?

A) shareholders of the surviving corporation
B) shareholders of both corporations
C) shareholders and the board of directors of the surviving corporations
D) shareholders and the board of the corporation that does not survive
E) The approval requirements are the same whether the increase in voting shares of the surviving corporation is more or less than 20 percent.

Question 53

Which of the following best describes a proxy contest?

A) Opposing factions of shareholders seek different prices for their shares.
B) Opposing factions of shareholders seek proxies so they can vote other shareholders' shares on a matter.
C) Members of the board of directors seek the support of other board members on a matter to be voted on by the board.
D) Opposing factions of shareholders seek to influence board members to vote in a certain way on a matter before the board of directors.

Question 54

Which of the following is not a correct description of a defensive strategy to a tender offer?

A) Selling a crown jewel refers to a sale by the target corporation of an asset that was particularly attractive to the tender offeror.
B) A white knight merger refers to a merger with a different purchaser that is friendlier toward management than the company that made the tender offer.
C) A poison pill is a strategy built into contracts,bylaws,and so forth,that can make any purchase of the corporation more expensive,such as leases that automatically expire upon the purchase and would require renegotiation,likely at a higher price.
D) Under a standstill agreement,shareholders holding a large number of shares of the target corporation agree that none of them will sell to the tender offeror,even if the tender offeror raises the offer price.
E) A greenmail payment is a payment,usually at greater than fair market value,made by the target corporation to the tender offeror for shares already owned by the tender offeror in exchange for the tender offeror dropping the tender offer.

Question 55

In a merger of corporations,a dissenting shareholder may elect to receive the fair value of her share instead of being part of the restructuring.This is called the shareholders':

A) dividend right
B) appraisal right
C) merger right
D) voting right
E) ultra vires right

Question 56

If a dissenting shareholder who has exercised his appraisal right is dissatisfied with the corporation's determination of the fair market value of the shares,then:

A) The shareholder has no further recourse.
B) The shareholder must choose to receive the appraisal amount or cancel the exercise of the appraisal right and accept the terms of the merger or other transaction.
C) The shareholder must pay for a new appraisal of the shares and seek that amount in court.
D) The corporation must petition the court to determine the fair value of the shares.

Question 57

In an ordinary merger,what approvals are needed?

A) Recommendation by both boards of directors and votes of the shareholders of each corporation.
B) Votes by both boards of directors,but shareholders need not approve.
C) Vote by the board of directors of the surviving corporation,and for the corporation that does not survive,recommendation by the board of directors and vote by the shareholders.
D) For both corporations,a vote by the shareholders,but no action by the board of directors.
E) No approvals needed by the surviving corporation,and for the corporation that does not survive,recommendation by the board of directors and vote by the shareholders.

Question 58

If a company that is the target of a hostile tender offer locates another corporation that will be friendlier to management and agrees to be taken over by this second company,this action is often referred to as:

A) a reverse tender offer
B) a greenmail payment
C) the selling of a crown jewel
D) adopting a poison pill
E) a white knight merger

Question 59

In a proxy contest,what obligation does management have to the dissenting group of shareholders?

A) Management must mail the proxy solicitation materials of the dissenting group.
B) Management must provide the dissenting group with a list of all shareholders.
C) Management must identify the leading representative(s) of the dissenting group in management's own proxy materials.
D) Management must either mail the proxy solicitation materials of the dissenting group or provide the dissenting group with a list of all shareholders.
E) Management must not provide false or misleading information about the dissenting group or the issue in controversy in its own proxy solicitation materials,but otherwise has no obligations to the dissenting group.

Question 60

In evaluating whether management's actions are appropriate in response to a hostile tender offer,the primary concern is usually that management might have improperly:

A) demanded too high a price for the corporation's stock
B) put its interests ahead of those of the shareholders
C) put persons that favor management on the board of directors
D) tried to implement changes to the corporate structure too quickly

Question 61

Many states have enacted antitakeover statutes to regulate takeover activity within their states.However,there is a federal statute governing tender offers.Therefore,these state statutes are:

A) constitutional
B) constitutional as long as it is possible to comply with both the state and federal laws
C) unconstitutional,because they violate the Commerce Clause
D) unconstitutional,because they violate the Supremacy Clause
E) unconstitutional,because they violate the First Amendment

Question 62

Robin Corporation has made a tender offer to acquire 80 percent of the shares of Cardinal Corporation at $58 per share.Because only 68 percent of Cardinal's shares have been tendered,the board of Robin wants to raise its offer price to $65 per share.Robin must:

A) cancel the first tender offer and start over
B) keep the higher offer open for at least 20 days
C) pay the $65 to all shareholders who accepted at $58 per share
D) not complete the merger unless at least 90 percent of Cardinal's shares are tendered

Question 63

Should shareholders encourage responsibility of corporations in which they invest,or should investors make those judgments by the choices of companies in which to invest? Which approach is more effective?

Question 64

Which of the following is true with regard to subsidiary corporations?

A) A corporation can conduct business in another country through a subsidiary corporation.
B) A parent corporation usually owns all or a majority of the subsidiary corporation.
C) A subsidiary corporation is a separate legal entity.
D) A parent corporation is not liable for the contracts or torts committed by the subsidiary corporation.
E) All of these are correct.

Question 65

Over the years,Maple Corporation has gradually been acquiring the stock of Spruce Corporation.Maple Corporation has increased its purchases of Spruce Corporation in the current year.At the beginning of the year,Maple owned 64 percent of Spruce,but by early August owned 91 percent.What is the easiest and quickest method for Maple to merge with Spruce?

A) complete a share exchange where Spruce is the surviving corporation
B) complete the merger in such a way that the number of common shares of Maple outstanding does not increase by more than 20 percent
C) complete a short-form merger requiring the approval only of the board of directors of Maple Corporation
D) complete a tender offer of Spruce

Question 66

Many persons believe that it is too easy for corporations to take over other corporations,and point to the large reductions in workforces which frequently result following mergers.Should there be limits placed on the ability to lay off employees following a business combination? What are the advantages and disadvantages of limited regulation of merger activity?

Question 67

JKL corporation has acquired 7 percent of Target Corporation in a hostile takeover attempt.Target is opposed to this takeover,so Target offers to purchase the 7 percent of its shares owned by JKL for $40 per share.The actual fair market value of that stock is $25 per share.JKL accepts the offer.This is an example of:

A) a white knight merger and is illegal
B) greenmail and is illegal
C) a white knight merger and is legal
D) greenmail and is legal
E) a poison pill and is legal

Question 68

Company X wants to acquire Company Y.Company X gives some of its own stock (X stock)to all of the shareholders of Y Company in exchange for their Y stock.Afterwards,Company X owns all of the Company Y stock.This transaction is called a(n):

A) merger
B) tender offer
C) purchase of assets
D) share exchange
E) hostile takeover

Question 69

Marvin owns several thousand shares of Elm Street Corporation.Hickory Street Corporation has proposed a merger with Elm Street where Hickory Street will be the surviving corporation.Hickory Street is proposing to give each current Elm Street shareholder some Hickory Street stock and some cash for each share of Elm Street.Marvin is opposed to some of the corporate policies of Hickory Street and does not want to own any of its stock.What is Marvin's best course of action in this situation?

A) Marvin can hope to obtain the support of other shareholders in opposing the merger,but must go along with the merger if it is approved.
B) Marvin can hope to convince the board of directors of Elm Street to oppose the merger,but if he is unsuccessful,he must go along with the merger.
C) Marvin can invoke his appraisal right,and would be entitled to receive cash for his shares even though the merger plan includes the receipt of Hickory Street shares.
D) Marvin can invoke his appraisal right,but because part of the price paid for the Elm Street shares is in the form of stock rather than cash,his appraisal right is limited.

Question 70

Expansive Corporation made a tender offer of $65 per share to the shareholders of Hometown Corporation to acquire 75 percent,but no more than that,of the shares of Hometown.Because only 68 percent of the shares had been tendered in 30 days,Expansive offered $75 per share,and another 20 percent of the shares were tendered in 4 days.Expansive terminated the higher offer on the fifth day,paid $65 for all the shares tendered at that price,and paid $75 for some of the shares tendered at the higher price.Discuss Expansive's actions.

Question 71

Tandem Corporation is the target of a hostile takeover by Alpha Corporation.Management of Tandem fears for its jobs because of statements made by Alpha's management about the need to streamline the management of Tandem.Tandem works out a deal with Beta Corporation for the two corporations to merge with Beta surviving.Beta has indicated that it will leave present management intact.Two years after the merger with Beta,an independent consultant reports that there are too many levels of management in the combined corporation and that 30 percent of management positions should be eliminated.In this circumstance,which of the following occurred?

A) Tandem prevented the merger with Alpha with a poison pill.
B) Tandem prevented the merger with Alpha by a white knight merger with Beta,which was an illegal tactic.
C) Tandem prevented the merger with Alpha by a white knight merger with Beta,which was legal; Tandem's management is liable to shareholders for the loss of profits due to the excessive levels of management.
D) Tandem prevented the merger with Alpha by a white knight merger with Beta,which was legal; Tandem's management is not liable to shareholders for the loss of profits due to the excessive levels of management assuming it is protected by the business judgment rule.

Question 72

Ramone is president of Rock Permanence,Inc.Flash in the Pan Corporation has just made a tender offer to the shareholders of Rock Permanence.Flash in the Pan is known for severe job cuts after takeovers,so Ramone and the other officers do the following:
1.They adopt contracts with provisions that the contracts will expire Flash in the Pan should acquire Rock Permanence.
2.They tell many shareholders that they will be hired if they do not accept the offer.Each of these shareholders is told to keep the arrangement secret and that they are one of only a select few who will be hired.
3.They distribute an article from a newspaper 2 years earlier that discussed the inept management of Flash in the Pan.They do not tell the shareholders that the publisher of the article had been successfully sued by Flash in the Pan because of false statements.
4.They send mailings to their shareholders calling the management of Flash in the Pan a "committee of the devil" and "shareholders' nightmare."
Discuss the appropriateness of the four listed actions by management.

Question 73

Corporation L is the target of a hostile takeover by Corporation O.Corporation L's most valuable asset is its oil fields.To stop the takeover,Corporation L decides to sell its oil fields.This antitakeover technique is best described as:

A) selling a crown jewel
B) a poison pill
C) a white knight merger
D) a reverse merger
E) greenmail

Question 74

At the time Corporation A was created,the management was concerned about potential hostile takeovers,so in the articles of incorporation it included a provision that all of Corporation A's contracts would expire if the ownership of Corporation A changed hands.This antitakeover technique is best described as:

A) selling a crown jewel
B) a poison pill
C) a white knight merger
D) a reverse merger
E) greenmail

Question 75

Bob has decided to solicit proxies from shareholders of Sunset Corporation.Bob owns two shares of Sunset,which have a share price of $48.Bob is soliciting the proxies in order to elect a friend of his to the board of directors.Bob's friend is reasonably intelligent but has no business experience.In his proxy solicitation,Bob accurately describes his friend and his background and indicates that the proxy is being sought in order to elect this friend to the board of directors.Bob does not disclose why he thinks his friend should be on the board of directors.Nor does Bob disclose what effect he thinks his friend being on the board will have on the earnings of the company.Two weeks before starting to solicit proxies,Bob filed copies of his proxy materials with the Securities and Exchange Commission.Bob:

A) has not properly prepared the proxy statement because he did not disclose the effect on the earnings of the company of electing his friend to the board
B) cannot solicit proxies because he has not owned at least $1,000 of stock for 2 years
C) can solicit the proxies only if he has obtained approval from the board of directors
D) will be able to recover the costs of this proxy contest,even if his friend is not elected
E) has complied with applicable proxy requirements

Question 76

If a corporation's shareholders are supposed to have ultimate control over the corporation,is it appropriate for management to get involved in proxy contests among shareholders? Under what circumstances is it most appropriate for management to get involved?

Question 77

Maple Corporation wants to acquire Foodcity Corporation,a chain of supermarkets.Both corporations are publicly traded.Maple Corporation has some cash,but not a large amount,and it needs to have ample cash for its operations.How might Maple be able to acquire Foodcity?

Question 78

In recent years shareholders have increasingly attempted to use shareholders' meetings as a forum to encourage corporations to operate in accordance with the views of one or some shareholders with respect to various policy issues.Common examples include environmental issues and human rights issues,especially for corporations with operations in other nations.Is this a proper forum for this particular type of activity? What are the arguments on each side of the issue? What other methods could these shareholders use to promote the viewpoints on these issues?