CORPORATION LAW : MERGER

FACTS: After that initial discussion, the board holds another meeting. At that meeting, you are advised by your outside lawyers that they consulted the IRS, and found out that in fact, a sale or spin-off of the shares would have a significant tax impact. Thus, it is not a viable way to raise cash.

The board knows that they need to find other ways to raise money, and explore the full range of other strategic alternatives. How should Corpsfun move forward to preserve and grow the brand and capitalize on what the board believes is the enormous untapped potential of the corporation?

Your core chip business has morphed into a series of inter-related tech businesses that are falling behind the rest of the market. You are concerned about losing the blue-chip brand name you once were.

Time to pursue other strategic alternatives...

You decide that your only option is to pursue strategic alternatives with other entities. Some options include:

• A merger with another entity that would have some synergies and be able to exploit your own.
• A merger with another entity that would provide vertical integration or some other strategic partnerships.
• Acquisition by another company that is interested in your assets, and so on.

The Board authorizes the formation of a special committee of the Board. Named the Strategic Review Committee and composed of certain independent members of the Board, the group will consider and evaluate possible strategic transactions. The Board resolved that it would not approve, or recommend to Corpsfun stockholders for approval, any strategic transaction if the Committee doesn't recommend the transaction.

The Corpsfun issued a press release announcing its plan and inviting other corporations that were interested in merging with or acquiring the company to express interest.

Over the next several weeks, the committee communicated with approximately 34 parties (entities that the board had identified as potentially significant strategic partners as well as corporations that had contacted Corpsfun on their own) to evaluate their interest in a potential transaction. About 18 of these entities signed a confidentiality form that provided access to a virtual data room that initially included a management presentation of three years of financial information about Corpsfun and publicly available documents.

In came the offers...

Corpsfun got a number of serious offers worth considering. One, from Apple, was an offer to buy all of Corpsfun shares at the current trading price. They would pay in Apple stock. So, current shareholders would receive shares in Apple rather than cash. Apple seemed interested in retaining current management. However, they offered no cash premium to shareholders over the current offering price.

You had thought that Apple would have been a great and obvious partner. But, you fear that shareholders and the market will react poorly to the lack of premium even though Apple shares seem attractive. It is also not clear how Apple will treat your other businesses. You have a concern that they will buy your shares and then dump many of the business lines it considers duplicative or unprofitable.

You then get another serious offer from Wowbank, a large national bank that has begun the process of acquiring tech companies. They are ambitious about online banking, and its ability to expand into online sales and payments structures as well as all sorts of other markets. They also are eager to get their hands on all the data your company has collected over time. They think they can use customer data to market new projects and technology successfully. They might be a good strategic partner for you. And, although technically in a different business, they are ambitious about the possibility to grow their organization. They offer a premium on the shares of $7 or $39 per share, although it is pretty clear that management (including many of the people who are making the current decision) will be let go.

QUESTIONS:

1. What other duties do you have to your shareholders at this point? What can you decide on your own?
2. What concerns should you be thinking about at this stage?
3. What steps should you take to pursue these types of deals?
4. How are you going to deal with these issues?
5. What will you need to do before you decide how to move forward with different issues?
6. What recommendation do you make and why?