Chapter 40 - Corporations: Mergers, consolidations, terminations. After reading this chapter, you will be able to answer the following questions: What are mergers and consolidations? What are the procedures for mergers and consolidations? What are asset purchases? What are stock purchases? What is a takeover? In what ways could the termination of mergers and consolidations occur?
Chapter 40 Corporations: Mergers, Consolidations, Terminations Copyright © 2015 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education Merger (Definition): A legal contract combining two or more corporations such that only one of the corporations continues to exist; in essence, one corporation “absorbs” another corporation 402 Consolidation (Definition): A legal contract combining two or more corporations, resulting in an entirely new corporation; in consolidation, neither of the original corporations continues to exist 403 Procedures for Mergers and Consolidations Boards of directors of all involved corporations must approve the plan Shareholders must approve the plan through a vote at a shareholder meeting The corporations must submit their plan to the secretary of state The state must review the plan, and if it satisfies legal requirements, grant an approval certificate 404 Other Terminology/Rights Regarding Mergers and Consolidations Rights of shareholders: Shareholders vote only on exceptional matters regarding the corporation Shortform merger (Parentsubsidiary merger): Parent corporation merges with a subsidiary corporation; does not require shareholder approval Appraisal right: Shareholder’s right to have his/her shares appraised, and to receive monetary compensation for their value 405 Purchase of Assets/Purchase of Stock Purchase of Assets: One corporation can extend its business operations by purchasing the assets of another company Corporate Assets (Definition): All intangible items (corporate goodwill, company name, company logo, etc.) and tangible items (buildings, property, etc.) owned by the corporation Note: Generally, corporation that purchases assets of another corporation does not acquire its liabilities Purchase of Stock: An acquiring corporation can take control of another corporation by purchasing a substantial amount of its voting stock 406 “Hostile” Takeover (Definition): A takeover to which management of the target corporation objects 407 Other Types of Takeovers Tender Offer: Aggressor (acquiring corporation) offers target shareholders a price above current market value of their stock Exchange Offer: Aggressor offers to exchange target shareholders’ current stock for stock in aggressor’s corporation Cash Tender Offer: Aggressor offers target shareholders cash for their stock “Beachhead” Acquisition: Aggressor gradually accumulates target company’s shares 408 SelfTender Offer (Definition): Response to corporate takeover attempt in which target corporation offers to buy its shareholders’ stock; if shareholders accept offer, target corporation maintains control of business 409 Leveraged Buyout (Definition): Occurs when group within a corporation (usually management) buys all outstanding corporate stock held by the public; group gains control over corporate operations by “going private” (i.e., becoming a privatelyheld corporation) 4010 “Legal Death” of Corporation Occurs in two phases: Dissolution: Legal termination of corporation Liquidation: Process by which trustee converts corporation’s assets into cash, and distributes them among corporation’s creditors and shareholders 4011 Voluntary Versus Involuntary Dissolution Voluntary Dissolution: Occurs when directors or shareholders initiate the dissolution process Involuntary Dissolution: State government forces the corporation to close 4012 Reasons For Involuntary (State Government Initiated) Dissolution of Corporation Corporation failed to pay taxes within 60 days of due date Corporation failed to submit its annual report to secretary of state with 60 days of due date Corporation did not have a registered agent or office in the state for 60 days or more Corporation failed to notify secretary of state within 60 days that its registered agent/registered office had changed Corporation’s duration (as specified in its articles of incorporation) has expired 4013 Reasons for CourtOrdered Involuntary Dissolution of Corporation Corporation obtained its articles of incorporation fraudulently Corporate directors have abused their power (“ultra vires” acts) Corporation is insolvent 4014 Exhibit 403: Life Stages of a Corporation Incorporation—Company becomes incorporated when articles of incorporation signed Corporation Conducts Business—Directors and officers oversee business, as shareholders ensure company’s stock has value Dissolution—Corporation legally terminated, either voluntarily or involuntarily Liquidation—Directors convert corporate assets into cash and distribute them among corporation’s creditors and 4015 shareholders ... Incorporation—Company becomes incorporated when articles of incorporation signed Corporation Conducts Business Directors and officers oversee business, as shareholders ensure company’s stock has value Dissolution—Corporation legally terminated, either ... corporation offers to buy its shareholders’ stock; if shareholders accept offer, target corporation maintains control of business 409 Leveraged Buyout (Definition): Occurs when group within a corporation (usually management) buys all outstanding corporate stock ... 405 Purchase of Assets/Purchase of Stock Purchase of Assets: One corporation can extend its business operations by purchasing the assets of another company Corporate Assets (Definition): All intangible items (corporate goodwill,