chapter 2 regulatory considerations[1]

8/8/2019 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.

chapter 2 regulatory considerations[1]

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