take over defenses

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take over defenses

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

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