biz org class 28

Unical: whatever the takeover defense measure chosen, it has to proportionately mirror the takeover threat.

the court's judicial interpretation of takeovers in this section.

revlon: example of a poison pill

an investor that you look to to help out is a "white knight"

cancellation fee is an agreement between the "white knight" and the target company, such that the white knight still gets something out of the bargain, even if it loses the bidding war. the parties will negotiate the value of the cancellation fee.

how is this a takeover defense mechanism?

if the hostile acquirer outbids the white knight, then the target company must pay the cancellation fee, which is an acquired debt of the hostile company/majority shareholder. this is very unattractive, because no matter what happens the white knight will have a benefit.

"no-shop agreements": agreement between the target and white knight that the friendly merger agreement will not be used to shop around the target company to get a higher return for the shareholders.

"lock up agreement": the white knight is given an option to buy multiple, valuable divisions of the target company, or the "crown jewels" of the company, at a price significantly reduced from the appraised value.

it is the duty of the targeted board to maximize the value that the shareholders can get.
no shop, lockup and cancellation were employed to stop the bidding war and to stop the hostile acquirer, and that stoppage of the bidding war stopped shareholders from being able to get the highest price. this is a breach of fiduciary duty to the shareholders.

companies exist to maximize capital for share holders. boards can consider what will be good for consumers in the long run. but they cannot do what

time-warner.
powerful CEOs can get a friendly bidder to do what it wants.
when time and warner decided they wanted to expand via merger, the negotiations fell through because the ego of the warner CEO caused a failure of the deals. ross wanted to maintain control of the merged companies, and was concerned about the amount of power he would exert. once a deal was negotiated, ross wanted power over the combined time-warner. he let things drag on, and that allowed paramount, a hostile bidder to come along a few years into negotiations, and target time. 

in time-warner, the threat that time fended against was that a merger with paramount would change the culture of the company and way of doing business.  the time company said that it wanted to preserve the culture of the time-warner company, but the target incumbent said that a merger with paramount would destroy the time culture.

in unical, the target company said that the bid was too low and therefore coercive.

the court bought the argument of time company that retaining the time culture was what was best for the shareholers in the long run. short term interests were not triggered. particularly noteworthy is that the time-warner merger had been ongoing for a long time.


14(a)(11) is a finalized but not yet enacted rule (because of the business roundtable). it allows shareholders of at least 3% of the company to accelerate board members of the company. 14(a)(11) is different from the leven & rosenthal cases because those were instances where control was changed by incumbents (SH have the right to be reimbursed for expenses they have laid out for changing the entire slate of the directors). under this rule, control does not shift.

the exam.
flag the issue quickly.
articulate the rule (which will be an expansion on the issue likely, because it will be fairly narrow). **even though we all know what the rules are from class, you MUST spell it out in the answer**
then, identify the particulars of the rule that are most directly affecting the outcome of the circumstances
apply the rule to the facts in light of the stated rule.