take over defenses

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  • 1. Take Over defenses MERGER AND ACQUISITION
  • 2. Introduction
    • Not all mergers are welcome
    • During the 1980s, a variety of devices were developed to defend firms from unwelcome takeover proposals
    • Anti take over defenses
      • Preventive measures
      • Active measures
    Chapter 19-
  • 3.
    • Poison Pill
    • Flip in plan
    • Flip over plan
    • Back end plans
    • Voting plans
    • People pill
    Preventive measures
    • Greenmail
    • Standstill agreement
    • White knights
    • White squire
    • Pac man defense
    • Restructuring
      • Active measures
  • 4. Memorandum Article of Association Corporate charter amendments Shark Repellant Legal existence Corporation’s name Existence purpose Authorized Share Identity of Directors Rules governing the internal management
  • 5. Corporate charter amendments
    • Common types
      • Classified boards
      • Super majority provisions
      • Fair price amendment
      • Dual Capitalization
  • 6. Classified boards
    • Divided into different classes
    • One class to be reselected each year
    • Delays effective transfer of control in take over
    • Example
      • Suppose twelve members in a group
      • Divided into group of three
      • Hostile bidder has to wait two more annual meetings inspite of holding majority of stocks
  • 7. Super majority provisions
    • Approval by large number of votes
    • 2/3 rd or 80% votes for merger approval
    • Board out clause
      • Give up the super majority provision
    • Interested directors cannot participate in voting on issue of merger
  • 8. Fair price amendments
    • Acquirer to pay fair price to shareholders of the firm
    • State in form of minimum price or P/E multiple
    • Use at two tiered bid by the acquirer
  • 9. Dual capitalization
    • New class of securities with voting rights
    • To friendly stockholders
    • Stock holders prefer special voting stocks
      • Increase dividend and power
    • Management retains the voting power
  • 10. Active Anti-takeover defenses
  • 11. Greenmail
    • Buying back of share at premium
    • Signing a Standstill Agreement
    Standstill Agreement
    • Not to increase holdings for particular period
    • Accompanied by target’s agreement
      • Acquirer's refusal
      • Prevents falling into hands of another bidder
  • 12. White Knights
    • Another company more acceptable
    • More favorable terms than original bidders
    • Terms required
    • Not to disassemble
    • No layoffs
  • 13. White squire
    • Target sells only a block of its stock to third party it considers to be friendly
    • In return, white squire may receive: board seats, dividend, discounted shares
    • Preferred stock usually used in white squire transactions because it enables board to tailor characteristics of stock as described
  • 14. Pac-Man Defense
    • Highly aggressive defense technique
    • Counter tender offer in response
    • Possible only if financial resources
    • May result into
      • May defend
      • May end up extremely destructive
      • High debts
  • 15. Restructuring
    • Going private
      • Buying bulk of the shares
    • Sales of attractive assets
      • Making less attractive
    • Undertaking major acquisitions
      • Draining its excess cash balance
    • Liquidating the firm
      • When liquidation is better than the bid