chapter 2 regulatory considerations[1]
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Regulatory Considerations
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Course Layout
Commo TakeoverTactics aDefe ses
Motivatio sfor M&A
M&AE viro me t
Search Throu hClosi Activities
Busi ess &Acquisitio Pla s
M&A Process
Tax & Accou tiIssues
Alter ativeStructures
Fi a cialMo eli
Tech iques
Public &Private Compa y
Valuatio
DealStructuri
Ba kruptcy &Liqui atio
Divestitures,Spi -Offs, &Carve-Outs
Alter ativeestructuriStrate ies
M&A a Other estructuri
Activities
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Current C a ter Learning jecti es
ri ary o jecti e: To ena le students to understandt e key ele ents of selected federal and stateregulations a lica le to
econdary o jecti e: ro ide students wit an
understanding of re-notification and disclosure re uire ents ofcurrent security and antitrust legislation
How decisions are ade in security and antitrustenforce ent agencies
How en iron ental, la or and enefit laws affects
Key ele ents of t e ar anes- ley legislation
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Federal ecurities Laws
ecurities ct (1933)
ecurities c ange ct (1934)
ection 13
ection 14
Willia s ct (1968) ection 13
Re uires registration ofu licly offered securities
owers C to re okeregistration
efines contentfre uency of C filings
efines ro y disclosurere uire ents
Regulates tender offers
efines disclosurere uire ents
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Su ary of Regulatory re-NotificationFiling Re uire ents
Willia s ct
Sc edule 13 ust e filled wit t e SEC wit in 10 days ofac uiring 5% of stock in anot er fir .
Sc edule 14 -1 ust e filed wit t e SEC for tender offers
Tender offers ust stay o en a ini u of 20 usiness days
Hart-Scott-Rodino ct
Filing necessary wit FTC if one fir s assets e ceeds $50illion or a fir as assets of less t an $10 illion ut a
urc ase rice e ceeding $200 illion
30 day waiting eriod efore transaction can e co leted
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Federal ntitrust Laws
Sher an ct (1890)
Section 1
Section 2
Clayton ct (1914)
Celler-Kefau er ct (1914)
Hart Scott Rodino ntitrustI ro e ent ct (1976)
Esta lishes cri inalenalties for restraint of
trade
akes ergers creating
ono olies illegal lies to fir s alreadydo inant in ser ed
arkets
Created FTC
ended Clayton ct toinclude asset as well asstock urchases
Re uires waiting eriodefore transaction can e
co leted
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State Laws
nti-takeo er Laws
ntitrust Laws
efine conditionsunder which a changein cor orate
ownershi can takelace.
Si ilar to federal laws
States ay sue tolock ergers
e en if notchallenged yfederal regulators
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Other lica le Legislation
Industry s ecific laws
En iron ental laws(federal and state)
La or and enefit laws(federal and state)
lica le foreign laws
anking, co unications,railroads, defense,insurance, and u licutilities
efine disclosure
re uire ents
efine disclosurere uire ents
Cross- order transactions su ject tolaws of countries in whichartici ants ha e
o erations
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Na igating ntitrust Laws(Horizontal ergers)
Ste 1: efine arket and deter ine concentration.
Herfindahl-Hirschman Inde
Ste 2: etermine otential ad erse competiti e effects ofmergers.
Coordinated interaction
ifferentiated products
Similarity of su stitutes
Step 3: Identify entry arriers.
roprietary technology, patents, go ernment regulations,in estment re uirements, or e clusi e ownership of naturalresources.
Step 4: Identify potential efficiencies resulting from usinesscombinations.
Step 5: ssess continued iability of firm without merger.
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Na igating ntitrust Laws( ertical ergers)
Steps described forhorizontal mergers alsoapply to ertical mergers
Regulators unlikely to challenge ertical mergers
unless
Rele ant market highly concentrated
erger limits access by others to a key
supplier
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Na igating ntitrust Laws(Collaborati e Efforts)
lliances and J s do not generally re uire appro al of regulatory authorities if
The combined strength ofpartners does not result in
a dominant market share in the global market for theproduct or ser ice
Smaller companies not holding dominant marketshares are unaffected
ccess to key resources by competitors is notrestricted
ricing practices or customer allocation amongpartners does not unreasonably restrict trade
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State nti-takeo er Laws
Fairprice pro isions re uire that all target shareholdersrecei e the same price when tender shares
usiness combination pro isions preclude sale of assetsfor a specific period following buyout, thereby inhibitingfinancing ofpurchase price
Cash-out pro isions re uire ac uirers purchasing morethan a stipulated amount of target stock to offer topurchase 100% of remaining stock at same price.
Share control pro isions re uire ac uirers whose
purchases e ceed some threshold to get appro al of shareholders owning large blocks of target stock beforeproceeding withmerger
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State ntitrust Laws
States granted increased antitrust poweras part of Hart-Scott-Rodino ct of 1976
owers often similar to federal laws States ha e right to sue to block mergers
they consider anti-competiti e, e en if theoJ orFTC do not challenge them
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Sarbanes-Oxley ill (7/31/02)
Created ublic Company ccounting Oversightoard whose responsibilities include:
--Registering public accounting firms--Establishing auditing standards--Establishing code of conduct
rohibits accounting firms from offering certain non-auditing services (e.g., information technology)
Re uires audit committees to consist of independentdirectors
Re uires CEOs/CFOs to certify financial statements
rovides for disclosure of all material off-balance sheettransactions
Increases criminal penalties to include prison sentenceof up to 20 years
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Things to Remember
Securities cts of 1933 and 1934 established the SEC and re uirethat all securities offered to the public must be registered with thegovernment.
Williams ct re uires those ac uiring 5% ormore of another firm tofile a Schedule 13 disclosing their ultimate intentions Firms initiating tender offers must disclose their intentions and
business plans in a Schedule 14 -1.
Sherman and Clayton cts make illegal agreements to fixprices,allocate customers among competitors, or to merge with anotherfirm if it reduces competition
Hart-Scott-Rodino ct re uires that mergers exceeding a certainsize must notify the FTC and oJ at the time it makes an offer to thetarget.
ntitrust regulators determine whether to challenge a mergerby ananalysis ofmarket concentration, potential forprice fixing, ease ofentry, impact on innovation, potential for improved efficiency, andthe likelihood the target firm will fail on its own.
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