Antitakeover Measures - Chapter 5 Exam

Defensive and offensive measures

Preventative and active measures

Pre-bid and post-bid measures

Strategic and tactical measures

Nonparticipating stockholders experience reduced wealth when management takes actions to deter takeover attempts.

Stockholder wealth rises when management takes actions to prevent changes in control.

Takeover defenses always increase firm value through the bidding process.

Tender offers are always more beneficial than leveraged buyouts for shareholders.

T. Boone Pickens

Bruce Wasserstein

Martin Lipton

Michael Jensen

Brown Foreman

El Paso Electric

Lenox

Crown Zellerbach

Flip-over pills are too expensive to issue.

Flip-over pills are effective only if the bidder acquires 100% of the target, not if the bidder acquires a controlling but less than 100% interest.

Flip-over pills cannot be redeemed by the board of directors.

Flip-over pills trigger automatically without any conditions.

He obtained a court order invalidating the pill.

He acquired more than 50% of the shares but avoided triggering the pill by not completing a 100% back-end closeout transaction.

He convinced shareholders to vote against the pill.

He made a friendly offer that the board accepted.

Poison pills were declared illegal in all circumstances.

Poison pills gave target corporations the opportunity to seek higher bids and were upheld as legal.

Poison pills could only be used against insider shareholders.

Poison pills required shareholder approval in all cases.

Any purchase of common stock by an individual investor.

An acquisition of between 10% to 20% of the outstanding stock by any individual, partnership, or corporation.

Any change in the company's auditor.

A decline of more than 50% in the company's stock price.

A poison pill that has been ruled unenforceable by a court.

A poison pill that a target adopts only after a bid has taken place or an activist has targeted the company.

A poison pill issued only to institutional investors.

A pill that uses derivatives instead of preferred stock.

Any shareholder who acquires a majority stake.

The directors who were on the target's board when the pill was adopted, or those appointed by such directors.

The SEC and other regulatory authorities.

Any independent director appointed at any time.

A higher threshold than ordinary poison pills

A lower threshold, usually 4.99%, because the IRS focuses on 5% shareholders for ownership changes.

The exact same threshold as ordinary pills

A threshold based only on dollar value of the offer

A pill that cannot be redeemed under any circumstances.

A pill that allows for a shareholder vote on whether a particular takeover bid would be covered by the company's poison pill.

A pill specifically designed for foreign bidders.

A pill that only operates during business hours.

Significant positive abnormal returns around pill adoption.

Small but statistically significant abnormal negative stock returns of –0.915% during a two-day window around the announcement date.

That all firms that adopted pills saw immediate 10% stock price increases.

That pill adoption had no impact on shareholder wealth whatsoever.

Poison pills had no effect on takeover premiums.

Companies protected by poison pills received 69% higher premiums in takeover contests than unprotected companies.

Poison pills reduced takeover premiums by 50%.

Poison pills were associated with an average 5% lower premium.

All directors are elected at the same annual meeting.

Only a certain percentage or class of directors, such as one-third, comes up for election during any one year, so each director is elected approximately once every three years.

Directors are appointed for life.

Only outside directors have voting rights.

They use different triggering events that complement each other.

A staggered board makes it more difficult to change the entire board and thus deactivate the poison pill.

Together they are required by SEC regulations.

The combination triggers automatic shareholder approval.

A requirement that all board members approve any merger.

A requirement for a higher-than-majority vote (typically 80% or two-thirds) to approve a merger.

A requirement that all shareholders attend the annual meeting.

A requirement that at least 51% of creditors approve a merger.

The issuance of both common stock and preferred stock with equal voting rights.

A restructuring of equity into two classes of stock with different voting rights to concentrate voting power in management-friendly hands.

A combination of stock and bond issuances.

The practice of having two separate boards of directors.

The greater the divergence between insider voting rights and cash flow rights, the more likely shareholder wealth will decline.

All dual class companies automatically outperformed single class companies.

Dual class companies had no relationship with takeover defenses.

Cash flow rights had no impact on shareholder wealth at dual class companies.

A provision that allows the company to set any price for its products.

A modification that requires the acquirer to pay minority shareholders at least a fair market price for the company's stock, often stated as a multiple of earnings per share.

A provision that prevents any takeover from occurring.

A provision that fixes the share price for life.

A friendly merger with a white knight.

Share repurchases of the bidder's stock at a premium above market price.

A poison pill issued as preferred stock.

A discriminatory self-tender offer for the target's own shares.

Because corporate law now prohibits any share repurchases.

Because federal tax laws impose a 50% tax penalty on gains derived from greenmail payments and companies have adopted antigreenmail charter amendments.

Because greenmail is no longer recognized in court decisions.

Because the SEC has banned greenmail transactions entirely.

A target paying a hostile bidder a fee to leave them alone.

A contractual agreement where a potential acquirer agrees not to increase its holdings in the target during a particular time period.

An agreement to merge with a white knight within 30 days.

A prohibition on the target paying any dividends.

A white knight seeks to acquire the target, while a white squire is a friendly firm that purchases a large block of stock without seeking control.

There is no difference between the two.

A white knight is friendly while a white squire is hostile.

A white squire buys all the assets, while a white knight buys stock.

A requirement that the bidder lock up its shares for a specified period.

An option given by a target to a friendly party to buy certain assets or stock in the event of a change in control.

A government-mandated order that halts all trading in the target's stock.

A type of poison pill restricted to senior management.

The lockup option was too expensive to be valid.

The lockup option effectively ended the bidding process and gave an unfair advantage to Forstmann Little's LBO, which the court found breached fiduciary responsibility.

Pantry Pride was not given an opportunity to match the option price.

The lockup option was for stock instead of assets.

A fee paid by a target to shareholders when the company is liquidated.

A fee paid to a bidder if the target company is taken over by a company other than the initial bidder, typically ranging between 2% and 3% of purchase price.

A fee paid by a bidder to the government for filing approval.

An early termination penalty paid to employees of the acquired firm.

$2.1 billion paid by Pantry Pride in 1985.

$1.6 billion paid by AbbVie to Shire in 2015.

$4 billion paid by AT&T in 2011 in connection with its failed acquisition of T-Mobile.

$10 billion paid by PeopleSoft in 2005.

An agreement that the seller will not solicit or enter into negotiations to sell to other buyers.

An agreement that prevents shareholders from selling their shares during the merger process.

An agreement that prohibits the bidder from operating retail stores.

An agreement that forbids any discussion of the deal with regulators.

A defense where the target makes a counteroffer to acquire the hostile bidder.

A defense that uses video game characters as legal arguments.

A defense that involves eating the hostile bidder's stock.

A defense that uses a partial tender offer for the bidder's shares.

A hostile bid from the Rales Brothers.

A friendly merger offer from a white knight.

A leveraged buyout proposal from its own management.

An activist campaign from Carl Icahn.

Interco remained independent but eventually defaulted on its debt due to overoptimistic projections.

Interco was eventually acquired by the Rales Brothers.

Interco became one of the largest oil companies in the world.

The court ruled the recapitalization defense valid and widely adopted it as a model.

The target refuses to be taken over, refusing to deactivate its defenses or bring the offer before shareholders, often citing more optimistic long-term plans.

The target engages in litigation to prevent the takeover.

The target seeks out multiple white knights simultaneously.

The target files for bankruptcy protection.

Resistance was associated with an upward revision of average earnings forecasts.

Resistance was associated with a downward revision of the average earnings forecasts of approximately 10%, signaling that the market interprets resistance as a negative signal.

Resistance had no impact on market perceptions of the target.

Resistance always led to increased takeover premiums.

A poison pill with a 50% trigger threshold.

A discriminatory self-tender offer for 29% of Unocal's outstanding shares that excluded Mesa Partners II from participating.

A supermajority provision requiring 80% approval for mergers.

A dual capitalization restructuring of equity.