Corporate Actions & Reorganizations Flashcards

What is a 'Dutch auction' tender offer?

Answer: An offer structure where shareholders specify the minimum price they will accept, and the company selects the lowest clearing price that meets its purchase target

In a Dutch auction tender offer, shareholders indicate their acceptable price within a range, and the company selects the single lowest price at which it can acquire the desired number of shares, paying all accepted shareholders that uniform price.

When a company undergoes a bankruptcy reorganization, existing common shareholders typically:

Answer: Are the last class to receive any recovery, often receiving little or nothing

In bankruptcy, the absolute priority rule places common shareholders at the bottom of the capital structure, meaning they only receive value after all creditors and preferred shareholders have been satisfied in full.

What is the purpose of a proxy solicitation in the context of corporate actions?

Answer: To allow shareholders to authorize another party to vote their shares at a stockholder meeting

A proxy solicitation seeks shareholder authorization for a designated party to vote on their behalf on corporate matters such as mergers, board elections, or bylaw changes at a stockholder meeting.

In a cash merger, an operations department receives instructions to process the transaction. Which of the following actions must be taken?

Answer: Debit the target company shares from client accounts and credit cash proceeds at the merger consideration price

In a cash merger, operations must remove the target company shares from client accounts upon closing and credit each account with the agreed cash merger consideration per share.

What is a 'rights offering standby underwriting' arrangement?

Answer: An agreement where an investment bank commits to purchase any unsubscribed shares remaining after the rights offering expires

In a standby underwriting, the investment bank agrees to purchase any shares not subscribed by existing shareholders during the rights offering, guaranteeing the issuer raises the targeted amount of capital.

Which statement best describes a 'mandatory reorganization with choice'?

Answer: A corporate action that is mandatory in outcome but gives shareholders a choice among types of consideration to receive

A mandatory reorganization with choice requires shareholders to participate in the event but allows them to elect among different forms of consideration, such as choosing cash versus stock in a merger.

When processing a corporate action with an upcoming deadline, what is the operations department's primary risk if client elections are submitted after the depositary's cutoff time?

Answer: The client's election may be rejected, causing the client to receive the default outcome instead of their chosen consideration

Missing the depositary's internal deadline for corporate action elections typically results in the client's instruction being rejected, and the client defaults to whatever the issuer has designated as the default consideration.