Question 1

The legality of defensive strategies in fighting a hostile takeover is examined using the "business judgment" rule.

Accepted Answer

The "business judgment" rule is a legal principle that allows a corporation's board of directors to use their judgment when making decisions, including defensive strategies against a hostile takeover, as long as they act in good faith and with due care. Therefore, defensive strategies in a hostile takeover can be legal if they comply with the "business judgment" rule.

Question 2

The Williams Act provides for both civil and criminal penalties for violation.

Accepted Answer

The answer of The Williams Act provides for both civil...

Question 3

A "poison pill" refers to a target company in a hostile takeover selling off valuable pieces of itself to make itself less attractive to the potential buyer.

Accepted Answer

A "poison pill" is a strategy used by a target company to make itself less attractive to a hostile bidder by issuing new shares or rights to existing shareholders, diluting the potential acquirer's stake.

Question 4

A "silver parachute" references large severance payments received by top executives when they leave their employment at a corporation.

Accepted Answer

A "silver parachute" refers to severance packages for lower-level employees, while "golden parachute" is the term for large severance payments for top executives.

Question 5

Any state regulation of hostile takeovers is unconstitutional under the commerce clause of the United States Constitution.

Accepted Answer

The U.S. Supreme Court has not categorically ruled that all state regulations of hostile takeovers are unconstitutional under the commerce clause. States can regulate takeovers as long as they do not unduly burden interstate commerce.

Question 6

The fair price rule as applied to tender offers provides that any increases in price paid for shares tendered must be offered to all shareholders,even those who have previously tendered their shares.

Accepted Answer

The fair price rule, also known as the equal treatment rule, requires that any increases in price offered in a tender offer must be extended to all shareholders, including those who have already tendered their shares. This rule is intended to ensure that all shareholders have an equal opportunity to participate in the tender offer on an even playing field. Failure to comply with the fair price rule can result in legal consequences for the offering company.

Question 7

The Williams Act requires a tender offeror to disclose detailed information regarding the term,conditions,and other information concerning the tender offer at the time the offer is made.

Accepted Answer

The Williams Act does indeed require tender offerors to disclose detailed information about the terms and conditions of their offer at the time it is made. This is intended to ensure that investors are fully informed about the offer and can make an informed decision about whether to accept it. Failure to comply with these disclosure requirements can result in legal action and penalties for the tender offeror.

Question 8

Prior to 1998,tender offers were not federally regulated.

Accepted Answer

Tender offers have been federally regulated since the Williams Act was enacted in 1968.

Question 9

The Williams Act requires a tender offeror to notify either the management of the target company or the SEC before the offer is made.

Accepted Answer

The Williams Act requires a tender offeror to notify both the management of the target company and the SEC before the offer is made.

Question 10

According to the Williams Act,the "fair price" rule stipulates that tendered shares must be purchased on a pro rata basis if too many shares are tendered.

Accepted Answer

The "fair price" rule under the Williams Act requires the bidder to offer a fair price to all shareholders in case of a tender offer. It does not stipulate that tendered shares must be purchased on a pro rata basis if too many shares are tendered.

Question 11

When a target corporation buys back stock at a premium over fair market value,the payment is called "greenmail."

Accepted Answer

Greenmail refers to the practice where a target corporation buys back its own stock from a potential acquirer at a premium to prevent a takeover.

Question 12

According to the Williams Act,the tender offer must be extended for ten (10)business days if the tender offeror increases the number of shares it will take or the price it will pay for the shares.

Accepted Answer

The Williams Act, also known as the Securities Exchange Act of 1968, requires that if the tender offeror increases either the number of shares it will take or the price it will pay for the shares, the tender offer must be extended for at least ten business days to give shareholders time to consider the new terms. This provision is intended to ensure that shareholders are not coerced into tendering their shares hastily without having enough time to evaluate the revised offer.

Question 13

In opposing a tender offer,adopting a poison pill involves issuing defamatory statements about the company.

Accepted Answer

Adopting a poison pill involves implementing a defense mechanism that makes the target company less attractive to the acquirer, such as creating new shares or options with unfavorable terms for the acquirer. It does not involve issuing defamatory statements about the company.

Question 14

According to the Williams Act,the tender offer cannot be closed before twenty (20)business days after the commencement of the tender offer.

Accepted Answer

The Williams Act requires a waiting period of at least twenty (20) business days after the commencement of the tender offer before it can be closed. This waiting period is intended to give shareholders adequate time to evaluate the offer and make an informed decision. Failure to comply with this requirement can result in legal action and penalties.

Question 15

The board of directors has a fiduciary duty to shareholders in taking action relative to a hostile takeover.

Accepted Answer

The board of directors has a legal obligation to act in the best interest of shareholders, which includes evaluating and responding to any threats posed by a hostile takeover attempt. This duty is known as their fiduciary duty.

Question 16

State antitakeover statutes are designed to protect domestic corporations,but not foreign corporations,doing business in the state.

Accepted Answer

Antitakeover statutes are usually state laws and are created to protect domestic corporations from hostile takeovers. Foreign corporations may be subject to different laws and regulations in the state they do business in. Therefore, state antitakeover statutes generally do not apply to foreign corporations.

Question 17

A successful tender offer between two corporations cannot be followed by a merger of the two corporations.

Accepted Answer

A successful tender offer between two corporations can be followed by a merger of the two corporations. In fact, it is often the goal of the tender offer to acquire a controlling stake in the target company and then merge it with the acquiring company.

Question 18

Creating an employee stock ownership plan to fight a tender offer is illegal under the Smith Act.

Accepted Answer

Creating an employee stock ownership plan to fight a tender offer is not illegal under the Smith Act. The Smith Act is a federal law that prohibits advocating the overthrow of the government or organizing or belonging to any group that advocates for the overthrow of the government. It has nothing to do with employee stock ownership plans.

Question 19

The Smith Act specifically regulates all tender offers,whether they are made with securities,cash,or other consideration,and it establishes certain disclosure requirements and antifraud provisions.

Accepted Answer

The statement is false. The Smith Act is actually a federal law that prohibits advocating or teaching overthrowing the government by force or violence. It has nothing to do with regulating tender offers. Tender offers are governed by other federal securities laws and regulations, such as the Securities Act of 1933 and the Securities Exchange Act of 1934.

Question 20

The Williams Act does not regulate the length of time that a tender offer must remain open.

Accepted Answer

The Williams Act requires that a tender offer must remain open for at least 20 business days.

Quiz 29: Corporate Acquisitions and Multinational Corporations