Question 1

Rex Incorporated, engages in an asset purchase of Tex Inc. In the process, Rex states that it will pay off all of Tex's creditors. After the transaction is complete, Rex Incorporated states that it will no longer honor that promise. What most likely be the outcome of this situation?

Accepted Answer

In asset purchases, the buyer typically does not assume the seller's liabilities unless explicitly agreed upon. Since Rex Incorporated expressly agreed to pay off Tex's creditors, they are likely obligated to fulfill that promise.

Question 2

If the court determines that a de facto merger occurred,

Accepted Answer

In a de facto merger, the acquiring company assumes the liabilities and obligations of the acquired company. This means the merged entity is responsible for the debts and liabilities that existed before the merger.

Question 3

In order to determine if a de facto merger occurred the courts will consider all of the following factors except:

Accepted Answer

The concept of a "de facto merger" does not hinge on the perception of a reasonable person regarding whether a merger occurred. Instead, it focuses on more tangible factors such as continuity of management, personnel, business operations, ownership, and the assumption of certain obligations by the buyer.

Question 4

Dorothy Inc. purchases the assets of Glenda Inc. to gain control of the company. Dorothy retains the same governing board at Glenda and keeps the company's name, Glenda. These actions may trigger what exception to the general rule that no successor liability exists in an asset transfer?

Accepted Answer

The mere continuation exception applies here because Dorothy Inc. retains the same governing board and keeps the company's name, indicating a continuation of the business entity rather than a completely new entity taking over. This can trigger successor liability despite the general rule against it in asset transfers.

Question 5

The board of Zen Corporation was close to insolvency when Alpha Inc. approached the board wanting to merge. The merger could have potentially saved Zen from insolvency. However, the members of board of Zen despised the board members of Alpha as Alpha recently defeated them in a company softball tournament. Therefore, there were a lot of hard feelings and the board of Zen refused to even talk with Alpha Inc. Zen slid closer to insolvency but Zen would not budge. All of the following statements are true except

Accepted Answer

The board's primary responsibilities include acting in the best interests of the corporation and its shareholders, which involves setting aside personal biases and emotions. The notion of a "right of self-interest and preservation" based on interpersonal conflicts between boards does not align with these fiduciary duties.

Question 6

In evaluating corporate transactions, the board has all of the following fiduciary duties except the duty of

Accepted Answer

The duty of wisdom is not a recognized fiduciary duty in corporate law. The recognized fiduciary duties of the board include the duty of care, the duty of loyalty, and the duty to act in the best interests of the corporation.

Question 7

All of the board members of Bruint Hockey Corporation despise the board members of the Bluet Hockey Corp. because of the Bluet's recent defeat of the Bruint Hockey team in the national championship series. The Bluet Hockey Corp. approaches Bruint to discuss an acquisition of their company. What advice would be the best to give to the Bruint Hockey Corporation board so that they may honor their fiduciary duties?

Accepted Answer

The best advice for the Bruint Hockey Corporation board to honor their fiduciary duties is to seek the advice and counsel of third parties such as attorneys, investment bankers, and valuation experts before deciding whether to approve the proposed acquisition. This ensures that their decision is informed, impartial, and in the best interests of the corporation and its shareholders, regardless of personal feelings towards the Bluet Hockey Corp.

Question 8

In the case, Paramount v. Q.V.C. Network, the court

Accepted Answer

The court issued an order stopping the Viacom-Paramount merger, primarily due to concerns about the deal not being in the best interest of Paramount's shareholders.

Question 9

According to the case, Paramount v. Q.V.C., the "enhanced scrutiny test" requires the court to evaluate if

Accepted Answer

In Paramount v. Q.V.C., the "enhanced scrutiny test" mandates the court to assess whether the decision-making process was adequate and if the directors' actions were reasonable given the circumstances. This test is designed to ensure that directors are acting in the best interest of the corporation and its shareholders, particularly in situations involving changes in corporate control.

Question 10

A transaction in which the board of a target company has no prior knowledge of an acquirer's purchase offer is called a

Accepted Answer

A transaction where the board of a target company has no prior knowledge of an acquirer's purchase offer is known as a hostile takeover. This occurs when the acquiring company seeks to take over the target company without the consent or cooperation of the target company's board of directors.

Question 11

All of the following statements about a hostile takeover are true except

Accepted Answer

A hostile takeover does not necessarily require preexisting animosity between the boards of the companies involved. It refers to the acquisition of one company (the target) by another (the acquirer) without the consent or cooperation of the target company's management.

Question 12

The legal concept that the hostile transaction information flow is restricted pursuant to confidentiality agreements is called

Accepted Answer

Confidentiality bubble refers to the legal concept where the flow of sensitive information regarding hostile transactions is restricted and controlled within a defined group of individuals, all bound by confidentiality agreements to ensure that the information does not leak to unauthorized parties.

Question 13

After intense discussions, the CEO of Rollins Corporation and the COO of Smith Inc. decide to join together in the best interests of both companies. This is called

Accepted Answer

When two companies of roughly the same size and market position decide to join together for mutual benefit, it is often referred to as a "merger of equals." This term suggests that neither company is buying out the other in a dominant fashion, but rather, they are combining to enhance their competitive position, share resources, and capitalize on synergies.

Question 14

All of the following are hostile takeover defense strategies except

Accepted Answer

"Budet bidding" is not a recognized term or strategy for defending against hostile takeovers. Poison pill, white knight bidder, and management buyout are all legitimate strategies used by companies to defend against unsolicited takeover attempts.

Question 15

Can litigation prevent a hostile takeover?

Accepted Answer

Litigation can be used as a defense strategy against a hostile takeover by challenging the legality of the takeover attempt or seeking injunctions to delay or block the takeover, providing the company under threat with more time to enact other defense strategies or negotiate better terms.

Question 16

In the case, Unitrin v. American General Corp., the court determined

Accepted Answer

In Unitrin v. American General Corp., the court held that the board's actions were reasonable and proportionate responses to the potential takeover, applying the Unocal test to evaluate the defensive measures taken by the board against the takeover attempt.

Question 17

In the case, Unitrin v. American General Corp. the court employed the definition of a non-employee and non-management director to be

Accepted Answer

An outside director is typically defined as a member of a company's board of directors who is not an employee or part of the management team. They are considered non-employee and non-management directors because they do not have a day-to-day role in the company's operations, which helps ensure their decisions are made without internal bias.

Question 18

According to the case, Unitrin v. American General Corp., __________ means that a director's decision is based on the merits of the subject before the board rather than extraneous considerations or influences.

Accepted Answer

In the case of Unitrin v. American General Corp., "Independence" refers to a director's decision being made based on the merits of the subject before the board, rather than being influenced by irrelevant factors or external pressures. This ensures that decisions are made objectively and in the best interest of the corporation.

Question 19

A special kind of contract that binds the parties to confidentiality and exclusivity obligations during the due diligence phase of a corporate transaction is called a

Accepted Answer

A Letter of Intent (LOI) often includes confidentiality and exclusivity clauses to protect both parties' interests during the due diligence phase of a corporate transaction, ensuring that sensitive information is not disclosed and that the parties do not negotiate with others for a specified period.

Question 20

Generation Next Corporation proposes to merge with the target Millennial Corporation. In the process, Generation Next reviews the finances and accounting of Millennial to determine if there are any liabilities or challenges with that target. This process is called

Accepted Answer

Due diligence is the process of thoroughly reviewing a company's financials, legal obligations, and other material concerns before entering into an agreement or transaction, such as a merger or acquisition.

Quiz 31: Corporate Transactions: Acquisitions and Mergers