Deck 31: Corporate Transactions: Acquisitions and Mergers

Question 1

When two companies merge, they vote to determine if either or both the merging companies will remain in existence.

Answer 1

False

Question 2

If a buyer wants to take-over control of a company but does not want to incur the preexisting debt and liability of the company the buyer should do an asset purchase.

Answer 2

True

Question 3

A reverse takeover occurs when a smaller firm acquires control over a larger one.

Answer 3

True

Question 4

Successor liability never exists in an asset purchase.

Question 5

In general, as long as an asset transfer is conducted at arm's length and it is reasonable it will not be considered fraudulent.

Question 6

A hostile takeover always involves hostility, bad feelings and unfriendly dealing.

Question 7

Due to the board members' duties of due care and loyalty, board members should seek the advice of third party experts when deciding to approve or reject a proposed merger or acquisition.

Question 8

Buyer Incorporated seeks to acquire Target Corporation. In order to do this they will engage in a process of researching the financial status of the Target Corporation to evaluate any potential liabilities in a process called due diligence.

Question 9

A merger agreement must list all of the board members and their role in the merged entity at the completion of the corporate transaction.

Question 10

In all corporate transactions, the board of the buyer company has fiduciary duties to the target company.

Question 11

Sprite and Gerizon were competing cellular phone services providers that decide they want to combine their companies to become Sperizon and dominate more of the cellular phone service market. This is an example of

A) A merger
B) An acquisition
C) A unification
D) A takeover

Question 12

When one company takes over a target company by stepping into the shoes of the target causing it to disappear by operation of law is a(n)

A) Merger
B) Acquisition
C) Unification
D) Absorption

Question 13

In 2006 Google purchased stock of YouTube by outbidding several competitors in a process called

A) Merger
B) Acquisition
C) Unification
D) Absorption

Question 14

In 2017, when AT&T proposed a $85 billion merger with Time Warner, who challenged this deal in court?

A) AT&T
B) Verizon
C) U.S. Department of Justice
D) U.S. Commerce Department

Question 15

The Board of Layne Corporation recently stated that under no circumstances would it allow Gwen Corporation to take-over its corporation. The problem is that the Board only owns five percent of the shares. Therefore, Gwen Corporation contacts all of the other shareholders and offers to purchase their shares of stock. What is this process called?

A) Stock takeover
B) Stock merger
C) Stock leveraging
D) Stock purchase

Question 16

Which one of the following statements about a stock purchase is correct?

A) When one purchases a controlling share of stocks in a corporation, all the debts and liabilities that were incurred in the past carries over in the purchase.
B) When one purchases a controlling interest of shares in a corporation, the previously acquired debt and liabilities are not transferred to the new controlling shareholders.
C) When one purchases a controlling interest of shares in a corporation, the debt is shifted to the original shareholders for the debt incurred prior to purchasing a controlling shares.
D) A stock purchase terminates any previously acquired debt by operation of law.

Question 17

Psi Pharmaceuticals, Inc. created a patented drug that cures cancer. Omega Corporation wishes to takeover Psi Pharmaceuticals but does not want to incur all of the previous debt and liabilities that Psi Pharmaceuticals incurred in the creation of the drug. Which type of transaction should Omega pursue to achieve this goal?

A) Stock purchase
B) Asset purchase
C) Merger
D) Dissolution

Question 18

All of the following terms are used to indicate where one company splits into two except

A) Demerger
B) Spin-off
C) Spin-out
D) Duplication

Question 19

In the case, Gimball v. Signal Companies, Inc., the court determined that the "substantially all" test

A) Does not require that every major restructuring of the corporation be approved by shareholders.
B) Requires shareholder approval for all major restructuring of the corporation.
C) Requires that the court approve all major restructuring of the corporation.
D) Does not require the court to use the "substantially all" test for private corporation.

Question 20

Black Cat Corp. wishes to conduct an asset purchase of Shylo Inc. so that it does not incur the unpaid taxes debt that Black Cat acquired prior to the asset purchase. Will the asset purchase achieve this goal?

A) No because all debts and liabilities are transferred over to the buyer in an asset purchase.
B) No because taxes are an exception to the rule that debts and liabilities do not transfer to the buyer with and asset purchase.
C) Yes because all debts terminate in an asset purchase.
D) Yes because a buyer can only legally be held liable for the debt the buyer created.

Question 21

Rex Incorporated, engages in an asset purchase of Tex Inc. In the process, Rex states that it will pay off all of Tex's creditors. After the transaction is complete, Rex Incorporated states that it will no longer honor that promise. What most likely be the outcome of this situation?

A) In all asset purchases, the debt of the target company never transfers to the buyer therefore Rex will not have to pay the debt despite the promise.
B) In all asset purchases the debt of the target company always travels with the buyer. Therefore, Rex will have to assume the debt of the target company.
C) While generally the buyer does not assume the debt of the target company when the buyer expressly agrees to assume the debt of the seller then the buyer will have to pay the debt.
D) Tex is solely responsible for its own debt and Rex will not be obligated to pay under any circumstances.

Question 22

If the court determines that a de facto merger occurred,

A) The corporation will lose its limited liability benefit.
B) The new company will be released from all its liabilities and debts.
C) The new company will need to be declared a new company by judicial decree.
D) The merged company will still incur the preexisting debts and liabilities.

Question 23

In order to determine if a de facto merger occurred the courts will consider all of the following factors except:

A) Whether the reasonable person would have determined that a merger occurred.
B) Whether there was continuity of management, personnel and business operations.
C) Whether there was continuity of ownership.
D) What was the assumption by the buyer of the seller's obligations necessary for uninterrupted operation of the company.

Question 24

Dorothy Inc. purchases the assets of Glenda Inc. to gain control of the company. Dorothy retains the same governing board at Glenda and keeps the company's name, Glenda. These actions may trigger what exception to the general rule that no successor liability exists in an asset transfer?

A) De facto merger
B) Mere continuation exception
C) Corporate doctrine
D) Fraudulent transaction doctrine

Question 25

The board of Zen Corporation was close to insolvency when Alpha Inc. approached the board wanting to merge. The merger could have potentially saved Zen from insolvency. However, the members of board of Zen despised the board members of Alpha as Alpha recently defeated them in a company softball tournament. Therefore, there were a lot of hard feelings and the board of Zen refused to even talk with Alpha Inc. Zen slid closer to insolvency but Zen would not budge. All of the following statements are true except

A) The board owes a fiduciary duty to act in the best interests of the corporation rather than their own personal interests when considering mergers and acquisitions.
B) The board owes a duty of care to seek the advice and counsel of third parties when evaluating whether to merge.
C) The board has a right of self-interest and preservation to understand that if two boards cannot work together it will have negative effects on the corporation when considering a merger or acquisition.
D) The board owes a fiduciary duty of loyalty to the corporation when considering a merger or acquisition.

Question 26

In evaluating corporate transactions, the board has all of the following fiduciary duties except the duty of

A) Care
B) Loyalty
C) Act in the best-interests of the corporation
D) Wisdom

Question 27

All of the board members of Bruint Hockey Corporation despise the board members of the Bluet Hockey Corp. because of the Bluet's recent defeat of the Bruint Hockey team in the national championship series. The Bluet Hockey Corp. approaches Bruint to discuss an acquisition of their company. What advice would be the best to give to the Bruint Hockey Corporation board so that they may honor their fiduciary duties?

A) Seek the advice and counsel of third parties such as attorneys, investment bankers and valuation experts before deciding whether to approve the proposed acquisition.
B) Decline the offer because if the board does not like them then it is never in the best interests of the Bruint Hockey Corporation.
C) Look for alternative acquisition opportunities.
D) Appeal to the court to offer judicial protection by judicial decree to avoid any acquisition.

Question 28

In the case, Paramount v. Q.V.C. Network, the court

A) Issued an order forcing the merger between Q.V.C. and Viacom.
B) Issued an order stopping the Viacom-Paramount merger.
C) Issued a continuation of the hearing to evaluate if the merger was in the best interests of the shareholders.
D) Issued an order to consult third parties to determine the proper avenue to pursue.

Question 29

According to the case, Paramount v. Q.V.C., the "enhanced scrutiny test" requires the court to evaluate if

A) The offer was reasonable and promoted fair dealing and good faith.
B) Third parties were consulted in the decision making process and if other opportunities existed that were more palatable to the board.
C) The decision-making process was adequate and the directors' actions in light of the circumstances wad reasonable.
D) The decision-making process would benefit the directors and the decision would establish sound precedent.

Question 30

A transaction in which the board of a target company has no prior knowledge of an acquirer's purchase offer is called a

A) Blind offer
B) Invisible offer
C) Blind takeover
D) Hostile takeover

Question 31

All of the following statements about a hostile takeover are true except

A) There must be some preexisting animosity between the competing boards.
B) It is not illegal.
C) The target corporation is unaware of the acquirer's purchase offer.
D) It is irrelevant if the offer is met with friendliness or hostility.

Question 32

The legal concept that the hostile transaction information flow is restricted pursuant to confidentiality agreements is called

A) Secrecy agreement
B) Confidentiality bubble
C) Secrecy bubble
D) Cone of silence

Question 33

After intense discussions, the CEO of Rollins Corporation and the COO of Smith Inc. decide to join together in the best interests of both companies. This is called

A) Merger of friends
B) Merger of interests
C) Merger of equals
D) Mergers of beneficiaries

Question 34

All of the following are hostile takeover defense strategies except

A) Poison pill
B) White knight bidder
C) Management buyout
D) Budet bidding

Question 35

Can litigation prevent a hostile takeover?

A) Yes litigation is a defense strategy to a hostile takeover.
B) No since there is no law against a hostile takeover there is no legally recognized wrong.
C) No because all is fair in venture capitalism.
D) Yes if the court determines that another option will generate more tax revenue.

Question 36

In the case, Unitrin v. American General Corp., the court determined

A) That the board acted unreasonably to the threat perceived.
B) The board's actions were reasonable and proportionate responses to the potential takeover.
C) The board's actions breach their duty of due care.
D) The board put self-interests before the best interests of the corporation.

Question 37

In the case, Unitrin v. American General Corp. the court employed the definition of a non-employee and non-management director to be

A) A disinterested party
B) A disengaged party
C) An outside director
D) An outside influence

Question 38

According to the case, Unitrin v. American General Corp., __________ means that a director's decision is based on the merits of the subject before the board rather than extraneous considerations or influences.

A) Wisdom
B) Reasonableness
C) Fair
D) Independence

Question 39

A special kind of contract that binds the parties to confidentiality and exclusivity obligations during the due diligence phase of a corporate transaction is called a

A) Letter of intent
B) Operating agreement
C) Authorization to negotiate
D) Certificate of deposit

Question 40

Generation Next Corporation proposes to merge with the target Millennial Corporation. In the process, Generation Next reviews the finances and accounting of Millennial to determine if there are any liabilities or challenges with that target. This process is called

A) Discover
B) Due diligence
C) Intentional investigation
D) Financial evaluation

Question 41

A merger agreement should contain all of the following except

A) Regulatory approvals
B) Representations
C) A schedule of events
D) Warranties

Question 42

In a share purchase agreement the following statement was included, "Both parties agree to operate with the utmost professionalism, integrity and good character in all corporate transaction such that it instills confidence and respect for the process and the result." This is an example of a(n)

A) Obligatory statement
B) Approval clause
C) Warranty
D) Covenant

Question 43

Termination rights in an asset purchase agreement may

A) Include fees and the payment of damages caused by certain events.
B) Allow both parties a 90 "cooling off" period if the transaction becomes hostile.
C) Require the termination to be handled with due diligence.
D) Allow the court to intervene judicially if it believes one of the parties is making unwise decisions or that one party possesses.

Question 44

Another phrase for termination clause that allows for payment of fees and damages is a(n)

A) Disenabling clause
B) Dissolution phase
C) Breakup fees
D) Not you damages

Question 45

In a merger agreement it states, "the board of both parties will be held harmless for the losses incurred as a result of a breach of its contractual obligations in the purchase agreement" is called

A) Termination agreement
B) Breakup clause
C) Warranty agreement
D) Indemnification clause

Question 46

Explain the general process of a corporate transaction.

Question 47

Renaldo Inc. wishes to acquire Messi Corporation but is uncertain which would be the best method to use to accomplish this. Messi has substantial debt due to back taxes and also debt due to unprofitable business decisions. Renaldo is deciding between a stock purchase and an asset purchase and seeks your opinion on the matter. What would you tell them about their options?

Question 48

List and explain four times when there is an exception to the general rule that there is to successor liability in an asset purchase.

Question 49

Explain the key characteristics of a hostile takeover and the myths.