1. RESPONSES TO UNSOLICITED
INDICATIONS OF INTEREST & BIDS
Anatomy of a Deal – Winter 2018
TEAM 3
Rachel Schlobohm, Zoe Dixon, Kentaro Tanaka, Luke
Salisbury
2. OVERVIEW
• Unsolicited interest or bids can be raised at various
points
1. When client isn’t currently considering a transaction
2. When client is the midst of negotiating with a different entity
re: possible transaction
3. After a merger agreement with another entity has already
been signed
• Timing has different implications on the Company
3. RESPONDING TO BIDS WHEN THE
CLIENT IS NOT CURRENTLY
CONSIDERING A TRANSACTION
4. ONE BIG ASSUMPTION
…YOU ARE NOT IN A
REVLON SCENARIO
• If the client has not previously
been considering a transaction,
it is unlikely they are in a Revlon
situation
• The company has not been
placed on the market
• Highly unlikely that the sale of
the company would be
considered imminent
• BUT the company is also
unlikely to be in a Time Warner
scenario
• More difficult to argue cultural fit
5. GENERAL CONSIDERATIONS
• Tender Offer, Exchange Offer, Direct Merger proposal etc.
• Get a Fairness Opinion
• Alessi standard versus Bershad standard
• Think carefully through the offer
• Why was the client not considering a transaction?
• Will this transaction create value for shareholders?
• Regulatory Concerns
• 10b-5; Stock Market Rules
• 14d-9 disclosures
6. DEFENSIVE MEASURES AVAILABLE
• Unocal Test
• Reasonable threat and
• A Proportional Response
• Poison Pill
• Litigation
• Restructuring
• Regulatory and Political Defenses
8. JUST SAY NO!
• Maylan/Perrigo Struggle
• Irish inversion left a lot of other defensive measures
off the table
• Successfully convinced shareholders not to tender
9. RESPONDING TO BIDS WHEN ALREADY
NEGOTIATING WITH A DIFFERENT
ENTITY RE: POSSIBLE TRANSACTION
10. WHAT DUTIES ARE TRIGGERED?
REVLON UNOCAL
• Board put itself up for sale
• Cash deal
• Duty = Board must show
they did everything they
could to get best price
• (A) Is there a loyalty issue?
[Is there a financial
conflict?]
• (B) Is there good faith?
• Board defended against hostile
takeover
• Duty = Board must prove defensive
measures in response to hostile
takeover threats are proportional
• (A) Reasonable threat?
• Most important group in
evaluating threat is the SHs
• (B) Response proportional?
• Within the range of
“reasonableness” – cannot
be preclusive / coercive
11. HOW FAR ALONG IN NEGOTIATIONS?
• Is there a confidentiality agreement in place?
• Is there a LOI with a no-shop provision in place?
• Is purchase price and deal structure determined?
13. IF TARGET WANTS TO REJECT NEW SUITOR…
KEEP STRINGENT DEFENSIVE
MEASURES IN PLACE (QVC)
• No obligation to abandon long-term strategy to maximize short-term
SH profits
• i.e. duty to maximize long-term value, but no duty to maximize short-
term value
• Decision to merge =/= decision to put a corporation up for sale, so no
Revlon duties
• …Unless “merger” is effectively a sale of control (then must provide
premium
• To be entitled BJR, board must act “reasonably to seek the transaction
offering the best value reasonably available to stockholders”
14. IF TARGET WANTS TO REJECT NEW SUITOR…
PURSUE A WHITE SQUIRE
• Target gives a block of stock
• To a friendly shareholder
• Who board knows will support management
• To protect current negotiations
15. IF TARGET WANTS TO REJECT NEW SUITOR…
PAC-MAN DEFENSE
• Target acquires a new company
• Increasing the cost of the transaction
• Making it less feasible or desirable for suitor to
acquire target
16. IF TARGET WANTS TO REJECT NEW SUITOR…
OTHER SHAREHOLDER VALUE-
ENHANCING STRATEGIES
• Target carries out one of the below transactions
• To boost market valuation
• By attracting market attention to each individual businesses
• Split-off - placing desirable assets in a corporation and
exchanging shares of the new company for shares of the parent
company
• Spin-off – distributing all shares of the new company to the
parent company’s shareholders as a dividend
• Split-up – separating or selling off businesses that no longer fit
the plan
17. IF TARGET WANTS TO REJECT NEW SUITOR…
WHEN ACQUISITION HAS BEEN
PUBLICLY ANNOUNCED
• Target carries out a stock repurchase plan above market
price
• Assuring shareholders of FMV of their shares and
reducing available cash
• To reduce vulnerability to unsolicited offers
19. IF TARGET WANTS TO ACCEPT NEW SUITOR…
PURSUE A WHITE KNIGHT
• Target engages in friendly merger
• With a new suitor who provides more economic
value
• Ousting current suitor
• Issue: rare and may be difficult to consummate
given regulatory considerations
20. IF TARGET WANTS TO ACCEPT NEW SUITOR…
PURSUE A LITIGATION DEFENSE
• Target examines contractual dealings with prior suitor
• In attempts to find a breach or violation
• Providing justification for a court to enjoin the prior
transaction
• Ex - Target finds:
• Breach in a confidentiality agreement
• Conflict of interest
• Restrictive change in control provision
21. RESPONDING TO BIDS AFTER A
MERGER AGREEMENT WITH
ANOTHER ENTITY HAS ALREADY
BEEN SIGNED
22. CASE STUDY: TIME WARNER
• Paramount Communications, Inc. v. Time Incorporated (DE
1989)
• Unocal v. Revlon – blurred lines?
• Case Overview
• Time shareholders and Paramount sued Time – sought preliminary
injunction to stop Time’s tender offer for 51% of Warner
Communication’s outstanding shares
• Time rejected Paramount’s offers in favor of Warner’s more
favorable terms that would help achieve long term company goals
& strategy
23. TIME WARNER: TIMELINE
• 1983-84 – Time board began considering
expanding operations into the entertainment
industry
• 1987 – est. special committee to consider &
propose corporate strategies for the 1990s
• July 1988 – Time board meeting to consider
consolidation
• Considered various options
• Concluded Warner was the superior candidate for
consolidation
• August 1988 – Talks with Warner ultimately
fail because of corporate governance issues
• Fall 1988 – Time pursued expansion plan into
entertainment field; held informal discussions
with several companies (including Paramount)
• January 1989 – Warner & Time resume
negotiations
• Stock-for-stock, merger of equals deal agreed upon
• Exchange rate favoring Warner of .465, resulting in
Warner SHs owning 62% of Time-Warner common
stock
24. TIME WARNER: TIMELINE (CONT.)
• March 1989 – Time & Warner boards approve
stock-for-stock reverse triangular merger
• Time adopts defensive measures
• Automatic share exchange agmt with Warner
• Confidence letters from banks
• No-shop clause
• May 1989 – Time sent out proxy statements to SHs
re: approval vote on merger
• June 7, 1989 – Paramount announces all-cash offer
to purchase all outstanding shares of Time for
$175/share
• June 16, 1989 – Time board rejects Paramount offer
• Restructures deal with Warner
• All-cash offer for 51% of Warner outstanding
stock at $70/share
• Remaining 49% purchased later for a mix of cash
& stock for less than $70/share
• Time assumes $7-10B in debt ($9B = Warner’s
good will)
• June 23, 1989 – Paramount raised all-cash offer to
buy Time’s outstanding stock to $200
• Time rejects again
25. REVLON CLAIM
• Initial Time-Warner agreement
indicated Time was up for sale
triggered Revlon duties
• Defensive provisions made it takeover-
proof
• Chancery court erred in finding that
Paramount offer was a reasonable
threat & danger to Time’s corporate
strategy
UNOCAL CLAIM
TIME WARNER: CLAIMS
TIME DEFENSE
• Consolidation with Warner was part of a long-term corporate strategy
• Time SHs might elect Paramount’s cash offer in mistaken belief that it provided a strategic
benefit
• Timing of Paramount’s offer was designed to upset, if not confuse, the Time’s SH vote
26. TIME WARNER: HOLDING
• No Revlon duties
• Absence of any substantial evidence to
conclude that Time’s board, in
negotiating with Warner, made the
dissolution or breakup of Time
inevitable
• Recasting of agreement doesn’t conclude
Time abandoned its strategic plan
• Threat to long-term corporate
plan legitimate
• Beginning 1983-84 – Time created
deliberate approach to expand itself
(required to survive)
• “Zealousness” of efforts to preserve
culture
• Defensive measures in new
arrangement reasonable
REVLON NOT TRIGGERED
DEFENSIVE TACTICS
PERMISSIBLE UNDER UNOCAL
27. QVC
• When a corporation undertakes a
transaction which will cause (a)
change in corporate control, or (b)
a break-up of the corporate
entity, the directors must seek the
best value reasonably available for
SHs
(Revlon triggered)
• Deal protections are
disproportion under Unocal step
2 if they:
• Preclude any alternative bids, or
• Entrench target management by
only allowing mergers that board
approves (especially when there is
no fiduciary out)
OMNICARE
FOLLOWING TIME WARNER
