I was privileged to guest lecture the Takeovers course at the University of Auckland Faculty of Law on May 22, 2014. This presentation provides an overview of some key differences between the New Zealand Takeovers Code and US law.

1. Stephen Bainbridge
University of Auckland Faculty of Law
May 22, 2014
USA M&A Law Compared to the NZ
Takeovers Code

2. USA Basics
Part I

3. Federal Law State Law (Delaware)
Securities Exchange Act of 1934
Williams Act of 1968
§ 13(d):
Beachhead
Acquisitions
§ 14(d): 3rd
Party Tender
Offers
§ 14(e): Anti-
fraud
provisions
CommonLaw
Takeover Defenses
Freeze-Out
Mergers
Fiduciary Duties
Corporate Federalism
3 © Stephen M. Bainbridge 2014

4. Federal Law State Law
 Securities and Exchange
Commission:
• Division of Enforcement
 Private party litigation
• No express private right of action
• Courts have created “implied
private rights of action” for both
both bidder and target to seek
equitable relief
– E.g., injunctions when other side has
violated disclosure or procedural rules
 In both cases, federal courts
have exclusive jurisdiction
 Law of state of incorporation
typically controls
 Most litigation in Delaware
Chancery Court
• No juries
• Corporate law experts
 Appeal to Delaware Supreme
Court
Enforcement
4 © Stephen M. Bainbridge 2014

5. Key Provisions Compared
Part II
5

6.  Williams Act:
• Ensure a level playing field between
bidder and target.
• “Investors have no right to receive
tender offers. More to the point … the
Williams Act does not create a right to
profit from the business of making
tender offers.” Amanda Acquisition
Corp. v. Universal Foods Corp., 877
F.2d 496 (7th Cir. 1989)
Purpose of Regulation
 Delaware state common law:
• Because of the “omnipresent specter”
that target management may act from
self-interested motives, use enhanced
scrutiny to ensure they comply with
their fiduciary duties.
 Takeovers Code:
• Equal treatment of shareholders
• Ensure that shareholders are able
to make an informed decision as
to whether or not to accept an
offer.
© Stephen M. Bainbridge 20146

7. Section 13(d): Requires disclosure by persons or groups who acquire beneficial ownership of more than
5% of any publicly traded equity securities.
Section 13(e): Regulates purchases by an issuer of its own publicly traded securities, including purchases
subsequent to commencement of a tender offer or a self-tender offer.
Section 13(f): Requires disclosure by institutional investment managers exercising investment discretion
with respect to accounts holding Section 13(f) securities if the aggregate fair market value
of such account exceeds $100 million.
Section 13(g): Requires disclosure by institutional investors who acquire beneficial ownership of more
than 5% of any publicly traded equity securities and elect to file a Schedule 13G in lieu of a
Schedule 13D.
Section 14(d): Regulates substantive aspects of, and requires disclosure in connection with, tender offers
by bidders who, upon consummation of the tender offer, would beneficially own 5% or more
of a publicly traded equity security.
Section 14(e): Prohibits fraud and certain other practices in connection with a tender offer; including
establishing specific time periods for, and a target company’s disclosure obligations with
respect to, a tender offer.
Section 14(f): Requires disclosure if, other than at a shareholder meeting, majority control of a target
company’s board of directors is to be changed subsequent to a transaction subject to
Section 14(d) or 13(d).
OVERVIEW OF THE WILLIAMS ACT
7 Stephen M. Bainbridge © 2014

8. 8
 Williams Act:
• Disclosure within 10 days of
acquiring 5% or more of target stock
(§ 13(d)
• Regulate disclosure/procedures for
tender offers for > 5% of target stock
• Only regulates tender offers
Fundamental Rule
 Delaware state law:
• Authorizes poison pills
– 20% ownership threshold upheld
(Moran v. Household International
Inc.)
– 4.9% ownership threshold upheld in
NOL pills (Versata Enterprises, Inc.
v. Selectica, Inc.)
 Takeovers Code:
• No person can:
– acquire more than 20% of the voting
rights in a code company; or
– increase an existing holding of 20% or
more of the voting rights in a code
company.
• Except via code-approved methods, such
as:
– a "full offer" in accordance with the Code;
– a "partial offer" in accordance with the
Code;
– under an acquisition approved by an
ordinary resolution of the code company
in accordance with the procedure set out
in the Code;
– under a "creeping" acquisition which
allows a shareholder who already holds
between 50% and 90% of a code
company to acquire up to an additional
5% in a twelve month period; or
– by means of a compulsory acquisition if a
shareholder holds 90% or more of the
shares in the code company.
© Stephen M. Bainbridge 2014

9. Takeovers Code Williams Act
 Shareholder commitments
• Bidder may seek firm commitments
from existing shareholders to accept
an intended Offer.
 Pre-bid purchases:
• Bidder may obtain a pre-offer stake
(up to 20%) by acquiring shares on-
market.
 Disclosure of substantial holdings:
• Disclosure required by securities law
as soon as the Bidder has a "relevant
interest" in 5% or more of a class of
voting securities, and subsequent
disclosures will be required for
movements of 1% or more.
 Shareholder commitments
• Shareholder lock-ups allowed.
 Pre-bid purchases:
• Bidder may acquire as many shares
as it wishes on open market, up to
100%.
 Disclosure of substantial holdings:
• File Schedule 13D within 10 days
after acquiring 5% or more of a class
of equity securities
• Amend “promptly” after a material
change
– Acquisition or disposition of 1% of
same class of equity security
presumptively material
Beachhead Acquisitions
9 © Stephen M. Bainbridge 2014

10.  Any person who acquires beneficial ownership of 5 percent or more of a class of equity
securities registered under Section 12 of the Exchange Act must file with the SEC a
Schedule 13D within ten days.
• A person “beneficially owns” any registered security if he either has or shares direct or
indirect power to vote, sell, or determine the disposition of that security. A person
is also deemed the beneficial owner of any securities that such person has the right to
acquire within sixty days, e.g., upon exercise of an option or conversion or exchange
of another security.
– Section 13(d)’s filing requirements also apply to any “group” who beneficially owns
5 percent or more of a class of an issuer’s equity securities. A group is formed when
two or more persons agree to act together to acquire, hold, vote, or dispose of
securities.
 The Schedule 13D must disclose information about: identity and background of each
filing person; number of shares of the target company that it beneficially owns; its
purpose in acquiring those shares; any plans or proposals with respect to the issuer or its
shares, etc.
Schedule 13D
10

11.  Williams Act Sections 14(d) and 14(e) triggered when any person commences a tender
offer for more than five percent of a class of a target’s equity securities.
• The provisions of Section 14(d) and Regulation 14D do not apply to a tender offer by
an issuer for its own the securities.
– Such tender offers are instead subject to Rule 13e-4 which, in addition to prescribing
filing, disclosure and dissemination requirements for tender offers by an issuer for its
own equity securities, also duplicates some of the antifraud provisions contained in
Section 14(e).
– Rule 13e-4 applies to issuers with any class of equity security registered pursuant
to Section 12 of the Securities Exchange Act of 1934 or that are required to file
periodic reports under Section 15(d) of the Securities Exchange Act of 1934, as
well as to certain investment companies.
Tender Offers and Self-Tender Offers
11 Stephen M. Bainbridge © 2014

12. What is a Tender Offer?
 Wellman v. Dickson (SDNY 1979):
1. active and widespread solicitation of
public shareholders;
2. for a substantial percentage of the
issuer’s stock;
3. at a premium over the prevailing
market price;
4. offer terms fixed, rather than
negotiable;
5. offer contingent on the tender of a fixed
minimum or limited to a maximum
number of shares to be purchased;
6. offer open for only a limited time period;
7. offeree subjected to pressure to sell;
and
8. public announcement of a purchasing
program preceding or accompanying a
rapid accumulation of a large amount of
the target’s securities
 Hanson Trust PLC v. SCM Corp. (2d Cir.
1985):
• Look at the totality of the
circumstances to determine whether
there is a likelihood that, unless
Section 14(d) is complied with, there
will be a substantial risk that
shareholders will lack information
needed to make a carefully
considered appraisal of the bidder’s
proposal/offer.
12 © Stephen M. Bainbridge 2014

13. Takeovers Code Williams Act
 Takeover notice to target and
registered exchange
 Target must give offeror a copy of
the securities register
 Target Company Statement
 Offeror must file a Schedule TO
with SEC
• In an exchange offer, must also register
securities to be issued as consideration
with SEC under Securities Act of 1933
 Target must either give offeror
stockholder list or agree to mail
offer to shareholders
• Offeror may be able to get stockholder list
via state law shareholder inspection rights
 Target management must file a
Schedule 14D-9
Disclosures
13 © Stephen M. Bainbridge 2014

14. 14
Procedures
Takeovers Code
 Rule 20: Same terms for all
securities of same class
 Rule 20: Same consideration
for all securities of same class
 Full offer must extend to all
voting and non-voting classes
 Partial offer must extend to all
voting classes
 Not less than 30 nor more than
90 days.
 Over subscribed partial offer
must be taken up pro rata
 Bidder who holds < 50% must have
>50% minimum acceptance condition,
absent rule 10(1)(b) procedure
Same Offer Within Class
Equal Treatment
Equal Treatment
Multiple Classes
Multiple Classes
Offer Period
Pro Rata
Minimum Acceptance Condition
Williams Act
 Rule 14d-10(a)(1): All-holders
Rule
 Rule 14d-10(a)(2): Best price
rule
 No such requirement
 No such requirement
 Minimum 20 business days.
 No maximum.
 Over subscribed partial offer
must be taken up pro rata
 Allowed but not required
© Stephen M. Bainbridge 2014

15.  Per Section 14(d)(5) and Rule 14d-7, shareholders have right to
withdraw tender shares at any time during the period the tender offer
remains open
• A bidder may not accept for payment and pay for tendered shares prior to the
end of the withdrawal period
• Bidder may not limit an extension of the withdrawal period to a select group
of the subject company's shareholders (e.g. only those shareholders who
tendered prior to the extension of the withdrawal period)
– Any extension of the period for withdrawal must be provided to all shareholders
Withdrawal Rights
15 Stephen M. Bainbridge © 2014

16. Minimum Offer Period
 Rule 14e-1: Minimum offer period of 20
business days
• Extension for at least 10 business
days after certain material changes in
the offer’s terms
– 10 day window runs from the date
of the change
– E.g., change on day 15 would
extend minimum total offer period
to 25 days not 30.
 Rule 14d-11 permits a bidder to provide an
optional subsequent offering period after
completion of a tender offer during which
security holders may tender their shares
without withdrawal rights.
• The requirements for a subsequent
offering period:
– Initial tender offer must be for all
outstanding shares.
– Bidder must announce results of initial
offering period (shares tendered) and
must accept and promptly pay for all
securities tendered during the initial
offering period at the closing of such
period.
– The subsequent offering period is at
the option of the bidder and, if
provided, must be open at least 3
business days and not more than 20
business days.
16 Stephen M. Bainbridge © 2014

17. 17
 Williams Act
• No relevant provisions
Takeover Defenses
 Delaware state law:
• Allowed, subject to judicial review for
compliance with target board of
directors’ fiduciary duties.
 Takeovers Code Rule 38(1):
“If a code company has received a
takeover notice or has reason to believe
that a bona fide offer is imminent, the
directors of the company must not take or
permit any action, in relation to the affairs
of the code company, that could effectively
result in—
(a) an offer being frustrated; or
(b) the holders of equity securities of the
code company being denied an
opportunity to decide on the merits of
an offer.
© Stephen M. Bainbridge 2014

18.  Golden Parachutes
• Very large severance payments for CEO in the event of a change of control
– Other C-Suite officers also usually have them
 Staggered board of directors
 Dual class stock
• One class having supermajority voting rights
– E.g., Google: Larry Page, Sergey Brin, and Eric Schmidt hold Class B stock with 10
votes per share. Public investors hold Class A stock with 1 vote/share.
– Collectively, control >50% of voting power
 Shark repellents
• Require payment of a fair price in a back-end freeze-out merger
• May impose a “freeze period” (e.g., 3 years) before a back-end freeze-out merger is
allowed
 Poison debt
• E.g., include change of control as an event of default
Common takeover defenses
18 © Stephen M. Bainbridge 2014

19.  Corporation issues rights (a form of option security) with 2 key provisions:
• "Flip-In" feature:
– Upon the acquisition of a specified percentage (generally 10-20% of the company's
outstanding common stock, each right, excluding those held by the acquirer, entitles
its holder to buy shares of the target issuer's common stock or other securities at
half price.
– More precisely, the value of the stock received when the right is exercised is
equal to two times the exercise price of the right.
• "Flip-Over" feature:
– Upon a merger or sale of some stated percentage (usually 50%) of the company's
assets, each right, excluding those held by the acquirer, entitles its holder to buy
shares of the acquirer having a market value equal to some multiple (generally 2x)
of the right's specified exercise price.
– In other words, once triggered, the flip over pill gives target shareholders the
option to purchase acquiring company shares at a steep discount to market.
Poison Pills
19 © Stephen M. Bainbridge 2014

20. Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d
34 (Del. 1994):
“The key features of an enhanced scrutiny test are: (a) a judicial
determination regarding the adequacy of the decision-making
process employed by the directors, including the information on
which the directors based their decision; and (b) a judicial
examination of the reasonableness of the directors’ action in
light of the circumstances then existing.”
Enhanced Scrutiny Standard
20 © Stephen M. Bainbridge 2014

21. For more information
21 © Stephen M. Bainbridge 2014
Mergers and Acquisitions, 3d (Foundation
Press Concepts & Insights)
• Stephen M. Bainbridge