Your SlideShare is downloading. ×
0
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
7 Nov
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

7 Nov

783

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
783
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
15
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide
  • Back-end A "back-end plan" is a type of  poison pill  arrangement. In this plan, current shareholders of the targeted company receive a rights  dividend , which allows for exchange of a share of  stock (including voting rights) for senior securities or cash equivalent to the "back-end" price established by the targeted firm. As a result of this strategy, the  takeover  bidder is unable to both 1) exercise this right, and 2) easily deter the rise in acquisition price. Bankmail In a  bankmail  engagement, the bank of a target firm refuses financing options to firms with  takeover  bids. This takeover tool serves multiple purposes, which include 1) thwarting  merger acquisition through financial restrictions, 2) increasing the  transaction costs  of the competitor’s firm to find other financial options, and 3) to permit more time for the target firm to develop other strategies or resources. Crown Jewel Defense Sometimes a specific aspect of a company is particularly valuable. For example, a telecommunications company might have a highly-regarded research and development (R&D) division. This division is the company's "crown jewels." It might respond to a hostile bid by selling off the R&D division to another company, or spinning it off into a separate corporation. Flip-in This common poison pill is a provision that allows current shareholders to buy more stocks at a steep discount in the event of a takeover attempt. The provision is often triggered whenever any one shareholder reaches a certain percentage of total shares (usually 20 to 40 percent). The flow of additional cheap shares into the total pool of shares for the company makes all previously existing shares worth less. The shareholders are also less powerful in terms of voting, because now each share is a smaller percentage of the total. Golden Parachute The  Golden Parachute  is a provision in a CEO's contract. It states that he will get a large bonus in cash or stock if the company is acquired. This makes the acquisition more expensive, and less attractive. Unfortunately, it also means that a CEO can do a terrible job of running a company, make it very attractive for someone who wants to acquire it, and receive a huge financial reward.  Greenmail Greenmail  is similar to blackmail, but it's green to represent the money the target must spend to avoid the takeover. If the acquiring company is on the verge of a controlling interest, they might offer the target the option to buy their stock back at a premium price. Sometimes, acquisition isn't the goal -- the acquiring company is just buying stock so they can sell it back and make a profit on the greenmail payment.  Jonestown Defense Some of the more drastic poison pill methods involve deliberately taking on large amounts of debt that the acquiring company would have to pay off. This makes the target far less attractive as an acquisition, although it can lead to serious financial problems or even bankruptcy and dissolution. In rare cases, a company decides that it would rather go out of business than be acquired, so they intentionally rack up enough debt to force bankruptcy. This is known as the  Jonestown Defense Lock-up provision Lock-up provision  is a term used in corporate finance which refers to the option granted by a seller to a buyer to purchase a target company’s stock as a prelude to a  takeover . The major or controlling shareholder is then effectively "locked-up" and is not free to sell the stocks to a party other than the designated party (potential buyer). Typically, a lockup agreement is required by an acquirer before making a bid and facilitates negotiation progress. Lock-ups can be “soft” (shareholder permitted to terminate if superior offer comes along) or “hard” (unconditional). Non-voting stock Non-voting stock  is  stock  that provides the shareholder very little or no vote on corporate matters, such as election of the  board of directors  or  mergers . This type of share is usually implemented for individuals who want to invest in the company’s profitability and success at the expense of voting rights in the direction of the company.  Preferred stock  typically has nonvoting qualities Pac-Man Defense The  Pac-Man defense  is a defensive option to stave off a  hostile takeover  in which a company that is threatened with a hostile takeover acquires its would-be buyer. The most quoted example in U.S. corporate history is the attempted hostile takeover of  Martin Marietta  by  Bendix Corporation  in 1982. In response, Martin Marietta started buying Bendix stock with the aim of assuming control over the company. Bendix persuaded  Allied Corporation  to act as a " white knight ," and the company was sold to Allied the same year. The incident was labeled a "Pac-Man defense" in retrospect. Poison pill In publicly-held companies, various methods to deter  takeover  bids are called "poison pills". Takeover bids are attempts by a bidder to obtain control of a target company, either by  soliciting proxies  to get elected to the board or by acquiring a controlling block of shares and using the associated votes to get elected to the board. Once in control of the target's board, the bidder can determine the target's management. As discussed further below, targets have various takeover defenses available, and several types of defense have been called "poison pills" because they not only harm the bidder but the target (or its shareholders) as well. At this time, the most common takeover defense known as a poison pill is a shareholder rights plan. Scorched earth defense   operational method which involves destroying anything that might be useful to the enemy while advancing through or withdrawing from an area. Staggered board of directors A  staggered board of directors  drags out the takeover process by preventing the entire board from being replaced at the same time. The terms are staggered, so that some members are elected every two years, while others are elected every four. Many companies that are interested in making an acquisition don't want to wait four years for the board to turn over.  White knight The White Knight  is a common tactic in which the target finds another company to come in and purchase them out from under the hostile company. There are several reasons why they would prefer one company to another -- better purchase terms, a better relationship or better prospects for long-term success. White squire A  white squire  is similar to a white knight, except that it only exercises a significant minority stake, as opposed to a majority stake. A white squire doesn't have the intention, but rather serves as a figurehead in defense of a hostile takeover. The white squire may often also get special voting rights for their equity stake. Whitemail In economics, Whitemail is an anti- takeover  arrangement in which the target  company  will sell significantly discounted  stock  to a friendly third party. In return, the target company helps thwart takeover attempts, by raising the acquisition price of the raider, diluting the hostile bidder’s number of shares, and increasing the aggregate stock holdings of the company.
  • The twentieth century began with the process of transformation of entire business scenario. The economy of India which was hitherto controlled and regulated by the Government was set free to seize new opportunities available in the world. With the announcement of the policy of globalization, the doors of Indian economy were opened for the overseas investors. But to compete at the world platform, the scale of business was needed to be increased. In this changed scenario, mergers and acquisitions were the best option available for the corporates considering the time factor involved in capturing the opportunities made available by the globalization. This new weapon in the armory of corporates though proved to be beneficial but soon the predators with huge disposable wealth started exploiting this opportunity to the prejudice of retail investor. This created a need for some regulation to protect the interest of investors so that the process of takeover and mergers is used to develop the securities market and not to sabotage it. In the year 1992, with the enactment of SEBI Act, SEBI was established as regulatory body to promote the development of securities market and protect the interest of investors in securities market. Further it got the power to make regulations for the above objectives. Thus SEBI appointed a committee headed by P.N. Bhagwati to study the effect of takeovers and mergers on securities market and suggest the provisions to regulate takeovers and mergers.
  • The twentieth century began with the process of transformation of entire business scenario. The economy of India which was hitherto controlled and regulated by the Government was set free to seize new opportunities available in the world. With the announcement of the policy of globalization, the doors of Indian economy were opened for the overseas investors. But to compete at the world platform, the scale of business was needed to be increased. In this changed scenario, mergers and acquisitions were the best option available for the corporates considering the time factor involved in capturing the opportunities made available by the globalization. This new weapon in the armory of corporates though proved to be beneficial but soon the predators with huge disposable wealth started exploiting this opportunity to the prejudice of retail investor. This created a need for some regulation to protect the interest of investors so that the process of takeover and mergers is used to develop the securities market and not to sabotage it. In the year 1992, with the enactment of SEBI Act, SEBI was established as regulatory body to promote the development of securities market and protect the interest of investors in securities market. Further it got the power to make regulations for the above objectives. Thus SEBI appointed a committee headed by P.N. Bhagwati to study the effect of takeovers and mergers on securities market and suggest the provisions to regulate takeovers and mergers.
  • Transcript

    • 1. Divestitures
    • 2. <ul><li>Definitions </li></ul><ul><ul><li>Divestiture </li></ul></ul><ul><ul><ul><li>Sale of segment of a company to a third party </li></ul></ul></ul><ul><ul><ul><li>Sale for cash or securities or some combination thereof </li></ul></ul></ul><ul><ul><ul><li>Assets revalued for purpose of future depreciation by the buyer </li></ul></ul></ul>
    • 3. <ul><ul><li>Spin-off </li></ul></ul><ul><ul><ul><li>Company distributes on a pro rata basis all shares it owns in a subsidiary to its own shareholders </li></ul></ul></ul><ul><ul><ul><li>Two separate public corporations with initially same proportional equity ownership now exist </li></ul></ul></ul><ul><ul><ul><li>No money changes hands </li></ul></ul></ul><ul><ul><ul><li>Subsidiary's assets are not revalued </li></ul></ul></ul><ul><ul><ul><li>Transaction treated as a stock dividend </li></ul></ul></ul><ul><ul><ul><li>Transaction is a tax-free exchange </li></ul></ul></ul>
    • 4. <ul><ul><li>Split-off – shares in subsidiary in lieu of shares in parent </li></ul></ul><ul><ul><li>Equity carve-outs </li></ul></ul><ul><ul><ul><li>Some of subsidiary's shares are offered for sale to general public </li></ul></ul></ul><ul><ul><ul><li>Bring infusion of cash to parent firm without loss of control </li></ul></ul></ul><ul><ul><ul><li>Often sell up to 20% in IPO, later spin off of remainder of shares </li></ul></ul></ul><ul><ul><li>Split-ups </li></ul></ul><ul><ul><ul><li>Two or more new companies come into being in place of original company </li></ul></ul></ul><ul><ul><ul><li>Usually accomplished by spin-offs </li></ul></ul></ul>
    • 5. Diverse Motives for Divestitures <ul><li>Dismantling segments of conglomerates which had higher values as independent operations or better fit with other firms </li></ul><ul><li>Sale of original business due to changing opportunities or circumstances </li></ul>
    • 6. <ul><li>Change in strategic focus which may reflect realignment with firm's changing environments </li></ul><ul><li>Adding value by selling into a better fit </li></ul><ul><li>Firm is unable or unwilling to make additional investments to remain in a business </li></ul><ul><li>Harvesting past successes to make resources available for developing other opportunities </li></ul><ul><li>Discarding unwanted businesses from prior acquisitions to value-increasing buyer </li></ul><ul><li>Divestiture to finance major acquisitions or LBOs </li></ul><ul><li>Divestiture used as a takeover defense by selling off &quot;crown jewel&quot; </li></ul><ul><li>Divestiture to obtain government approval of a combination of segments with competing products </li></ul>
    • 7. <ul><li>Corporate sale of divisions or business units to operating managements </li></ul><ul><li>Divestiture of unrelated divisions to focus on core businesses </li></ul><ul><li>Divestiture of low margin product lines to improve margins and profitability </li></ul><ul><li>Divestiture to finance another firm </li></ul><ul><li>Divestiture to reverse prior mistakes </li></ul><ul><li>Divestiture of businesses after learning more about them </li></ul>
    • 8. Divestiture process <ul><li>  Most divestitures proceed through the following steps: </li></ul><ul><li>Working with the owner(s) or management team and key advisors, we identify the goals desired in a sale.  During this stage, we confer with other  advisors (e.g., attorneys and CPAs) to be sure that legal and personal financial considerations are taken into account. </li></ul><ul><li>We prepare a valuation -- a detailed analysis of the value that should be achieved in a sale. We review this with the seller and affirm the decision to go forward. </li></ul><ul><li>Using our network of industry contacts, we develop a targeted list of potential acquirers and review it with the seller.  We contact prospective buyers by telephone and screen them for interest.  Even if preliminary discussions are already underway with one prospective buyer, we have usually found it to be in the seller's best interest to solicit additional buyers. </li></ul><ul><li>We require prospective buyers to sign confidentiality agreements before receiving  proprietary information.  When necessary, we will negotiate the terms of these agreements with buyer counsel. </li></ul><ul><li>While the buyer contact process is underway, we prepare a detailed information package referred to as an offering memorandum.  It includes financial information (historical and projected) along with a description of the company's markets, clients, competition, staff, facilities, and other resources.  The offering memorandum is designed to contain enough information for a prospective buyer to make a bid decision. </li></ul><ul><li>We follow up with the offering memorandum recipients to assess their interest, provide additional information as necessary, and arrange for site visits or &quot;chemistry meetings&quot; between the seller and prospective buyer executives. </li></ul>
    • 9. Divestiture process…. <ul><li>We conduct initial negotiations with prospective buyers, with the objective of obtaining satisfactory offers. We make recommendations on the form and terms of the sale based on analysis and evaluation of the offers received, as well as on tax issues that come to our attention.  When both parties are in agreement on the main points of the business deal, a letter of intent (usually non-binding) is prepared and signed. </li></ul><ul><li>Once the letter of intent is signed, attorneys typically begin drafting the final sale contract. At the same time, accountants or buyer financial staff conduct a detailed &quot;due diligence&quot; investigation of the seller's financial condition. We advise the seller and his or her professionals during this process.  </li></ul><ul><li>We make recommendations on selling executives' salary arrangements. </li></ul><ul><li>We assist with any negotiations or financial issues that arise prior to closing. </li></ul><ul><li>While this is the most typical pattern, every transaction is different.  Depending upon the circumstances and the needs of sellers and buyers, some of these steps may be omitted or occur simultaneously. </li></ul><ul><li>Throughout the process, our goal is to assure clear communication and identification of all key issues, so that no problems surface at the last minute to delay or kill the deal. </li></ul>
    • 10.  
    • 11. Friendly takeovers <ul><li>Before a bidder makes an offer for another company, it usually first informs that company's board of directors. If the board feels that accepting the offer serves shareholders better than rejecting it, it recommends the offer be accepted by the shareholders. </li></ul><ul><li>In a private company, because the shareholders and the board are usually the same people or closely connected with one another, private acquisitions are usually friendly. If the shareholders agree to sell the company, then the board is usually of the same mind or sufficiently under the orders of the shareholders to cooperate with the bidder. This point is not relevant to the UK concept of takeovers, which always involve the acquisition of a public company. </li></ul>
    • 12. Hostile takeovers <ul><li>A hostile takeover allows a suitor to bypass a target company's management unwilling to agree to a merger or takeover. A takeover is considered &quot;hostile&quot; if the target company's board rejects the offer, but the bidder continues to pursue it, or the bidder makes the offer without informing the target company's board beforehand. </li></ul><ul><li>A hostile takeover can be conducted in several ways. </li></ul><ul><li>- A tender offer can be made where the acquiring company makes a public offer at a fixed price above the current market price. Tender offers in the USA are regulated with the Williams Act. </li></ul><ul><li>- An acquiring company can also engage in a proxy fight , whereby it tries to persuade enough shareholders, usually a simple majority, to replace the management with a new one which will approve the takeover. </li></ul><ul><li>- Another method involves quietly purchasing enough stock on the open market, known as a creeping tender offer , to effect a change in management. In all of these ways, management resists the acquisition but it is carried out anyway. </li></ul><ul><li>The main consequence of a bid being considered hostile is practical rather than legal . If the board of the target cooperates, the bidder can conduct extensive due diligence into the affairs of the target company. It can find out exactly what it is taking on before it makes a commitment. But a hostile bidder knows about the target by only the information that is publicly available, and so takes a greater risk. Also, banks are less willing to back hostile bids with the loans that are usually needed to finance the takeover. However, some investors may proceed with hostile takeovers because they are aware of mismanagement by the board and are trying to force the issue into public and potentially legal scrutiny </li></ul>
    • 13. Perceived pros and cons of takeover <ul><li>Pros: </li></ul><ul><li>Increase in sales/revenues (e.g. Procter & Gamble takeover of Gillette) </li></ul><ul><li>Venture into new businesses and markets </li></ul><ul><li>Profitability of target company </li></ul><ul><li>Increase market share </li></ul><ul><li>Decrease competition (from the perspective of the acquiring company) </li></ul><ul><li>Reduction of overcapacity in the industry </li></ul><ul><li>Enlarge brand portfolio (e.g. L'Oréal's takeover of Bodyshop) </li></ul><ul><li>Increase in economies of scale </li></ul><ul><li>Increased efficiency as a result of corporate synergies/redundancies (jobs with overlapping responsibilities can be eliminated, decreasing operating costs) </li></ul><ul><li>Cons: </li></ul><ul><li>Reduced competition and choice for consumers in oligopoly markets. (Bad for consumers, although this is good for the companies involved in the takeover) </li></ul><ul><li>Likelihood of job cuts. </li></ul><ul><li>Cultural integration/conflict with new management </li></ul><ul><li>Hidden liabilities of target entity. </li></ul><ul><li>The monetary cost to the company. </li></ul>
    • 14. Takeover defences <ul><li>Back-end </li></ul><ul><li>Bankmail </li></ul><ul><li>Crown Jewel Defense </li></ul><ul><li>Flip-in </li></ul><ul><li>Golden Parachute </li></ul><ul><li>Greenmail </li></ul><ul><li>Jonestown Defense </li></ul><ul><li>Lock-up provision </li></ul><ul><li>Non-voting stock </li></ul><ul><li>Pac-Man Defense </li></ul><ul><li>Poison pill </li></ul><ul><li>Scorched earth defense </li></ul><ul><li>Staggered board of directors </li></ul><ul><li>White knight </li></ul><ul><li>White squire </li></ul><ul><li>Whitemail </li></ul>
    • 15. Necessity of Takeover Code <ul><li>The confidence of retail investors in the capital market is a crucial factor for its development. Therefore, their interest needs to be protected. </li></ul><ul><li>An exit opportunity shall be given to the investors if they do not want to continue with the new management. </li></ul><ul><li>Full and truthful disclosure shall be made of all material information relating to the open offer so as to take an informed decision. </li></ul><ul><li>The acquirer shall ensure the sufficiency of financial resources for the payment of acquisition price to the investors. </li></ul><ul><li>The process of acquisition and mergers shall be completed in a time bound manner. </li></ul><ul><li>Disclosures shall be made of all material transactions at earliest opportunity. </li></ul>
    • 16. International Application Areas of comparison India Hong Kong Australia U.K Malaysia USA Singapore Are takeovers   regulated Yes Yes Yes Yes Yes Yes Yes Who Regulates SEBI SFC SIC FSA Securities Commission, Malaysia Securities and Exchange Commission (SEC) Securities Industry Council Threshold limit (Initial Acquisition) 15% 35% 20% 30% 33% Offers are only voluntary 30% or 1% creeping between 30% to 50% Creeping Acquisition limit (subsequent acquisitions for consolidation of holdings) 5% for shareholders holding 15% to 75% 5% for shareholders holding 35% to 50% 3% in 6 months No 2% in 6 months No 1% in 6 months for shareholders holding shares between 30% and 50% Concept of Control No % specified for acquisition of control. Definition of acquisition of control includes power to appoint majority of directors and control major policy decisions. 35% or more 20% 30% 33% or more No 30% or more Public announcement To be made To be made To be made To be made To be made To be made To be made Letter of offer To be sent To be sent Target response statement to be sent To be sent To be sent To be sent. To be sent. Offer size Minimum 20% of the voting share capital of the target company Acceptance conditional at 50% Not specified For balance shares Not specified As much as 5% called “ Tender Offers ” Less than – ‘ Mini tender offer ’  
    • 17. Overview of Takeover Regulations <ul><li>“ Takeover” is a transaction whereby a person (individual, group of individuals or company) acquires control over the assets of the company either: </li></ul><ul><ul><li>directly by becoming the owner of those assets; or </li></ul></ul><ul><ul><li>indirectly by obtaining control of the management of the company . </li></ul></ul><ul><li>Takeover can be of a listed or an Unlisted company </li></ul><ul><li>In case of Takeover of an Unlisted and closely held company – Companies Act, 1956 to apply. </li></ul><ul><li>In case of Takeover of a listed company, the following legal framework to apply: </li></ul>
    • 18. Overview of Takeover Regulations (Cont’d.) <ul><ul><li>SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 issued by the Securities and Exchange Board of India (SEBI); </li></ul></ul><ul><ul><li>Companies Act, 1956; and </li></ul></ul><ul><ul><li>Listing Agreement </li></ul></ul><ul><li>“ Take Over” – taking over the control of management </li></ul><ul><li>“ Substantial acquisition of shares or voting Rights”- acquiring substantial quantity of shares or voting rights </li></ul><ul><li>SEBI Regulations for the first time introduced in 1994, but found inadequate to control hostile takeovers or regulate competitive offers and revision of offers. </li></ul>

    ×