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Corporate Mergers and Acquisitions
Professor Bradford
May 2, 2002
9:00 a.m.
3 Hours and 15 Minutes
INSTRUCTIONS
(PLEASE READ BEFORE PROCEEDING!)
1. This is a partially open book exam. You may use the books required for the course
(the casebook, the 2001 supplement to the casebook, and the statutory supplement), plus any
materials prepared exclusively by you, including notes and outlines. You may not use any
other materials and you may not consult with or communicate with any other person during this
exam. If you have any other books, notes, briefcases, book bags, or other items, you must bring
them to the front of this room. You may not take any of these items to the special purpose
rooms.
2. You have three hours and fifteen minutes (3:15) to complete the exam. The time at
which the exam ends will be posted on the board. Writing anything after time is called is an
Honor Code violation. You may not even finish a word or sentence.
3. If you finish the exam more than five minutes early, you may turn in your answers in
the Dean's Office. Otherwise, you must turn in your answers in this room--regardless of where
you take the exam.
4. This exam has eight (8) pages, including the instructions. The page numbers appear
on the top right-hand corner of each page. Please check to be sure that this copy has all the
pages.
5. The exam consists of six (6) questions. The recommended time for each question is
as follows:
Question 1…………………………...30 Minutes
Question 2…………………………...55 Minutes
Question 3…………………………...30 Minutes
Question 4…………………………...30 Minutes
Question 5…………………………...25 Minutes
Question 6…………………………..25 Minutes
Each question will be weighted in accordance with its recommended time.
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CONTINUE TO THE NEXT PAGE.
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6. You may take the exam in this room or in a designated special purpose room (typing
or overflow room) posted on the board. If you decide to take the exam in a special purpose
room, remember that (1) time will be called only in this room, and (2) when time is called, you
must either be present in this room or have already turned in your answers.
7. Do not spend all of your time writing. Think about the issues and organize your
answers before writing. Be concise. Be organized. Long, disorganized, rambling answers will
be penalized.
8. Please write legibly. I can=t give you credit for what I can=t read.
9. For each question, assume, unless the question indicates otherwise, that Delaware
law applies.
10. If you believe that additional facts are necessary to answer a question, state exactly
what those facts are and how they would affect your answer. If you believe that a question is
ambiguous or unclear, note the ambiguity or lack of clarity and indicate how it affects your
answer.
11. The questions should be answered in blue books, or on typing paper if you type your
exam. Please write or type on only one side of each page. Double-space if you type. BE SURE
TO WRITE YOUR EXAM IDENTIFICATION NUMBER ON EACH BLUE BOOK OR
PIECE OF TYPING PAPER THAT YOU USE. Do not put your name on any materials you
turn in.
12. The Honor Code is in effect.
13. Good luck and have a pleasant summer.
DO NOT TURN THIS PAGE UNTIL YOU ARE GIVEN THE SIGNAL TO START.
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QUESTION ONE
(30 Minutes)
On March 1, 2002, Alpha Corporation (“Alpha”) acquired 60% of the stock of Omega,
Inc. (“Omega”) in a tender offer. Alpha now has control of a majority of the board of directors of
Omega. Alpha has proposed a cashout merger between Alpha and Omega, in which the minority
shareholders would be paid $100 a share. Several of the minority shareholders have filed an
appraisal action seeking the “fair value” of their shares instead. Alpha’s federal securities law
filings in connection with the merger disclose the following:
A. After the merger, Alpha plans to consolidate the administrative offices of Alpha and
Omega, resulting in considerable cost savings to the companies and increased profit.
B. Prior to the merger, Alpha signed a lucrative contract with Western Industries, Inc.
(“Western”) to supply a product made by both Alpha and Omega. Western is on the West
Coast, where Omega’s manufacturing facility is located. Alpha’s manufacturing facility
is located on the East Coast, so Omega could fulfill the contract more profitably. After
the merger, Alpha plans to manufacture the product at Omega’s facility.
Discuss whether either of these items would be considered by the court in determining the
fair value of plaintiffs’ shares in an appraisal proceeding.
Note: Assume that the plaintiffs are entitled to the appraisal remedy. Do not address that
issue.
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QUESTION TWO
(55 Minutes)
Six months ago, Sigma Corporation (“Sigma”) sold all of its assets to Beta Corporation
(“Beta”) for Beta stock and cash. The acquisition agreement provided that Beta was not
assuming any of Sigma’s liabilities. The agreement also provided that Sigma could not dissolve
within two years of the sale to Beta.
The acquisition agreement required Sigma to immediately transfer the Beta stock and
cash to Sigma’s shareholders. Sigma had two classes of stock, Class A and Class B. The Class
A shares were widely held by the general public. The Class B shares are held by the founders of
the company and past and present Sigma officers and employees. As provided in the agreement,
the Class A shareholders received Beta stock in exchange for their Sigma stock and became
shareholders of Beta. The Class B shareholders received cash only and remain Sigma
shareholders.
Shortly after the acquisition, Beta fired most of Sigma’s old employees and moved the
old Sigma operations to one of Beta’s more modern plants. Beta continues to manufacture the
old Sigma products under the Sigma trademark, which it acquired as part of the purchase.
Sigma has not done any business since the acquisition. Sigma is now insolvent and
unable to pay its creditors. Sigma has two types of unpaid creditors: (1) suppliers who were not
paid for the goods they furnished Sigma; and (2) people who claim they were injured by
defective products manufactured by Sigma. Discuss the claims Sigma’s creditors might have
against anyone other than Sigma. (Assume that both Sigma and Beta are incorporated in states
that have adopted the Revised Model Business Corporation Act.)
NOTE: Do not discuss possible claims under (1) state bulk sale laws or (2) federal bankruptcy
law.
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QUESTION THREE
(30 Minutes)
Target Corporation (“Target”) is the subject of a hostile tender offer by Bidder, Inc.
(“Bidder”). The Target board opposes the offer on the ground that it offers inadequate value for
the Target shares. Target has adopted a poison pill plan and Bidder’s tender offer is contingent
on Target’s redemption of the poison pill.
If Target shareholders challenge the Target board’s opposition to Bidder’s offer, discuss
(separately) what effect, if any, each of the following facts would have on the court’s analysis:
A. A majority of Target’s board of directors consists of outside directors with no other
connection to Target.
B. Target has agreed to sell all of its assets to Acme Corporation for cash. Target began the
negotiations with Acme after Bidder made its bid.
C. Before receiving the bid from Bidder, Target’s board analyzed a possible merger with
several companies, including Bidder, and entered into an agreement for a stock-for-stock
merger with Delta Corporation.
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QUESTION FOUR
(30 Minutes)
You are an associate with Dewey, Cheatham, & Howe, a large law firm that specializes in
mergers and acquisitions. The managing partner of the firm has asked you to prepare a brief
written summary of when and under what conditions a no-talk provision is valid under Delaware
law. Your future career depends on it. Draft the summary.
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QUESTION FIVE
(25 Minutes)
You work for the West Bank of the Missouri (“West Bank”), an investment banker
working on an acquisition of United National Laboratories (“UNL”) by Perlman Chancellor, Inc.
(“Perlman”). Perlman and UNL are two large, publicly traded Delaware corporations. Perlman
and UNL have reached an impasse in their merger negotiations because the two companies are
unable to agree on a price. It looks like the deal might fall apart, and West Bank wants you to
suggest price provisions that the two companies might agree on.
The proposed acquisition is a stock-for-stock merger, and Perlman and UNL have been
unable to agree on an exchange ratio. Perlman is demanding an exchange ratio of two Perlman
shares for every three UNL shares (2:3 exchange ratio). UNL insists that it will take no worse
than three Perlman shares for every four UNL shares (3:4 exchange ratio). This 3:4 ratio roughly
reflects the current ratio between the two companies’ market prices.
Perlman’s officers and directors are insisting on a discount from the current market ratio
of the two stocks because they believe that UNL’s earnings will decline sometime in the next two
or three years because of a declining market for UNL’s products. UNL’s officers and directors
don’t foresee this happening. If anything, they believe that UNL’s stock is currently
undervalued. UNL and Perlman are adamant in their beliefs about the future and neither can
convince the other.
For tax and other reasons, this deal must be done as a stock-for-stock merger. Discuss
how to draft the merger agreement to get around this impasse.
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QUESTION SIX
(25 Minutes)
You are an attorney with the firm Givus, Moore, & Moore. The firm represents Avarice,
Inc., a Delaware corporation which has signed a letter of intent to acquire Electro, Inc. a much
smaller Delaware corporation. Part of Electro’s business is to sell and lease computer systems to
small businesses. Each sales contract obligates Electro to service the systems for a specified
period of time. Your firm has asked you to prepare a plan to conduct all the necessary due
diligence relating to these contracts. Briefly discuss the due diligence you think would be
appropriate.
Do not waste your time discussing what due diligence is. The partner to whom you’re
directing the memo is thoroughly familiar with the process. He just wants the due diligence plan
itself.