Takeover and takeover defenses

1. Takeover and TakeoverTakeover and Takeover
DefensesDefenses

2. Types of TakeoverTypes of Takeover

3. Types of TakeoversTypes of Takeovers

4. Friendly, Hostile & BailoutFriendly, Hostile & Bailout
TakeoversTakeovers
 Takeover can be eitherTakeover can be either “Friendly”“Friendly” oror “Hostile”“Hostile”..
 In case of aIn case of a FFriendly takeoverriendly takeover, the promoters / management of the target, the promoters / management of the target
company are also, in principle, agreeable to be taken over by the acquirercompany are also, in principle, agreeable to be taken over by the acquirer
and are willing to peacefully cede control over the target company to theand are willing to peacefully cede control over the target company to the
acquirer. This happens when the entire promoter group is willing to exit..acquirer. This happens when the entire promoter group is willing to exit..
 On the other hand, sometimes promoter group receives an offer from aOn the other hand, sometimes promoter group receives an offer from a
perspective acquirer whom they do not want to sell out to. It may evenperspective acquirer whom they do not want to sell out to. It may even
occur that some of the entities in the promoter group are against the selloccur that some of the entities in the promoter group are against the sell
out. On these occasions the sellout takeover battle follows. This is knownout. On these occasions the sellout takeover battle follows. This is known
asas HHostile takeoverostile takeover
 Bailout TakeoverBailout Takeover involves takeover of a sick company by a financiallyinvolves takeover of a sick company by a financially
sound, rich company as per Sick Industrial Companies Act (1985)sound, rich company as per Sick Industrial Companies Act (1985)

5. Types of Friendly TakeoverTypes of Friendly Takeover
SituationsSituations
 (i)(i) The target company may be open to only one specific acquirerThe target company may be open to only one specific acquirer, if, if
the latter agrees to the price and other conditions of takeover such as non-the latter agrees to the price and other conditions of takeover such as non-
retrenchment of employees, post acquisition role of the existingretrenchment of employees, post acquisition role of the existing
promoters / management, non-compete fees, continuation of certainpromoters / management, non-compete fees, continuation of certain
businesses etc.businesses etc.
 (ii) In the second case,(ii) In the second case, the promoters and management of the targetthe promoters and management of the target
company may be open to any acquirer who offers them overall thecompany may be open to any acquirer who offers them overall the
best deal.best deal.
 (iii) In the third case, the promoters / management of the(iii) In the third case, the promoters / management of the target companytarget company
may have a negative list of acquirers in mind that they do not want tomay have a negative list of acquirers in mind that they do not want to
sell out to. Outside this negative list of acquirers in mind, they aresell out to. Outside this negative list of acquirers in mind, they are
open to anyone who offers them the best deal.open to anyone who offers them the best deal.

6. Benefits of a Friendly TakeoverBenefits of a Friendly Takeover
 Friendly takeover is beneficial to both, the acquirer and the existingFriendly takeover is beneficial to both, the acquirer and the existing
promoters.promoters.
 For the acquirerFor the acquirer the benefits are: (i) The target company shares thethe benefits are: (i) The target company shares the
critical information required by the acquirer to carry out valuation ofcritical information required by the acquirer to carry out valuation of
the target company. (ii) It facilitates due diligence by the acquirer. (iii)the target company. (ii) It facilitates due diligence by the acquirer. (iii)
It cooperates in carrying out the legal formalities.It cooperates in carrying out the legal formalities.
 For the target companyFor the target company and its promoters the benefits are: (i) chancesand its promoters the benefits are: (i) chances
are higher that an acquirer would offer better price for the targetare higher that an acquirer would offer better price for the target
company (ii) the acquirer may allow the promoters and managementcompany (ii) the acquirer may allow the promoters and management
of the target company to continue and have important roles post-of the target company to continue and have important roles post-
acquisitionacquisition

7. Example of Friendly and HostileExample of Friendly and Hostile
TakeoversTakeovers
 In the case of Tata Steel’s acquisition of Corus, the later was alsoIn the case of Tata Steel’s acquisition of Corus, the later was also
looking for a prospective acquirer, who was a low cost producer oflooking for a prospective acquirer, who was a low cost producer of
steel, was close to it culturally and who would not retrench employees.steel, was close to it culturally and who would not retrench employees.
Hence they were willing to sell out to Tata Steel. Corus was also openHence they were willing to sell out to Tata Steel. Corus was also open
to being acquired by a Brazilian company CSN. Therefore, there was ato being acquired by a Brazilian company CSN. Therefore, there was a
bidding war between the two. However, the acquisition was stillbidding war between the two. However, the acquisition was still
friendlyfriendly as Corus was willing to sell out to Tata Steel.as Corus was willing to sell out to Tata Steel.
 On the other hand, in the case of Mittal Steel’s acquisition of Arcelor,On the other hand, in the case of Mittal Steel’s acquisition of Arcelor,
the management of Arcelor was strongly opposed to takeover bythe management of Arcelor was strongly opposed to takeover by
Mittal Steel, whom they sneered at as a company promoted by anMittal Steel, whom they sneered at as a company promoted by an
Indian. Hence Mittal has to resort to aIndian. Hence Mittal has to resort to a hostilehostile takeover route.takeover route.

8. Tactics Used by Acquirer forTactics Used by Acquirer for
Taking over a target companyTaking over a target company

9. Tactics Used by AcquirerTactics Used by Acquirer
 Casual PassCasual Pass
 Open Market Purchases and Street SweepsOpen Market Purchases and Street Sweeps
 Dawn RaidDawn Raid
 Bear HugBear Hug
 Saturday Night SpecialSaturday Night Special
 Proxy FightsProxy Fights
 Tender OfferTender Offer

10. Casual PassCasual Pass
 Before initiating a takeover initiative, the bidder may attemptBefore initiating a takeover initiative, the bidder may attempt
some informal overture to the management of the target. Thissome informal overture to the management of the target. This
is sometimes referred to as casual pass. It may come from ais sometimes referred to as casual pass. It may come from a
member of the bidder’s management or from one of itsmember of the bidder’s management or from one of its
representatives , such as its investment banker. A casual passrepresentatives , such as its investment banker. A casual pass
may be used if the bidder is unsure of the target’s response.may be used if the bidder is unsure of the target’s response.

11. Open Market Purchases and StreetOpen Market Purchases and Street
SweepsSweeps
 A bidder may accumulate stocks in the target before making aA bidder may accumulate stocks in the target before making a
tender offer. The purchaser usually tries to keep these initialtender offer. The purchaser usually tries to keep these initial
purchases secret to put as little upward pressure as possible onpurchases secret to put as little upward pressure as possible on
the target’s stock price. To do so, the acquisitions are oftenthe target’s stock price. To do so, the acquisitions are often
made through various shell corporations and partnershipsmade through various shell corporations and partnerships
whose names do not convey the true identity of the ultimatewhose names do not convey the true identity of the ultimate
purchaser.purchaser.
 Upon reaching the 5% threshold, the purchaser has 10 daysUpon reaching the 5% threshold, the purchaser has 10 days
before it is necessary to make a public disclosure. This timebefore it is necessary to make a public disclosure. This time
may be used by the bidder to augment its stockholding. Themay be used by the bidder to augment its stockholding. The
larger the purchaser’s position in the target, the more leveragelarger the purchaser’s position in the target, the more leverage
the firm has over the target.the firm has over the target.

12. Dawn RaidDawn Raid
 In this tactics, the broker acting on behalf of the acquirerIn this tactics, the broker acting on behalf of the acquirer
swoop down on stock exchange (s) at the time of its openingswoop down on stock exchange (s) at the time of its opening
and buy all available shares before the target wakes up.and buy all available shares before the target wakes up.
 This tactics to succeed, the scrip, has to be highly liquid.This tactics to succeed, the scrip, has to be highly liquid.
 Even if the target does not wake up, investors would and theEven if the target does not wake up, investors would and the
price is likely to go up.price is likely to go up.
 Indian takeover code prohibit the acquirer, along with theIndian takeover code prohibit the acquirer, along with the
persons acting in concert from acquiring 15% or more sharespersons acting in concert from acquiring 15% or more shares
or voting capital (including the shares and voting capitalor voting capital (including the shares and voting capital
already held) of the target company without making an openalready held) of the target company without making an open
offer.offer.

13. Bear HugBear Hug
 The acquirer makes a very attractive tender offer to theThe acquirer makes a very attractive tender offer to the
management of the target company for the latter’smanagement of the target company for the latter’s
shareholders and asks them to consider the same offer in theshareholders and asks them to consider the same offer in the
interest of the shareholders. Though such offer of the acquirerinterest of the shareholders. Though such offer of the acquirer
is unsolicited, the board of the target company is bound tois unsolicited, the board of the target company is bound to
consider it impartially on account of its fiduciary capacity inconsider it impartially on account of its fiduciary capacity in
protecting public shareholders’ interests. Further if the offer isprotecting public shareholders’ interests. Further if the offer is
really good, the board cannot reject it just on frivolous groundreally good, the board cannot reject it just on frivolous ground
to protect the interest of the promoters of the target. Chancesto protect the interest of the promoters of the target. Chances
are that the public shareholders and particularly institutionalare that the public shareholders and particularly institutional
shareholders would favorably respond.shareholders would favorably respond.

14. Saturday Night SpecialSaturday Night Special
 This is the same tactics as bear hug, but made on the Friday orThis is the same tactics as bear hug, but made on the Friday or
Saturday night (last working day of a week) asking for aSaturday night (last working day of a week) asking for a
decision by Monday (first working day of the next week). Thedecision by Monday (first working day of the next week). The
idea behind this is to give very little time to the promoters /idea behind this is to give very little time to the promoters /
board of the target company to set up their defenses. This isboard of the target company to set up their defenses. This is
also called “Godfather Offer”.also called “Godfather Offer”.

15. Proxy FightProxy Fight
 In this tactics, the acquirer convinces majority (in value)In this tactics, the acquirer convinces majority (in value)
shareholders to issue proxy rights in his favor, so that he canshareholders to issue proxy rights in his favor, so that he can
remove the existing directors from the board of the targetremove the existing directors from the board of the target
company and appoint his own nominees.company and appoint his own nominees.
 However, this method in which the control is sought withoutHowever, this method in which the control is sought without
acquisition may not be sustainable since every time theacquisition may not be sustainable since every time the
acquirer will have to keep on acquiring proxies fromacquirer will have to keep on acquiring proxies from
geographically scattered shareholders. Also, such removal orgeographically scattered shareholders. Also, such removal or
appointment of majority directors will be treated as anappointment of majority directors will be treated as an
acquisition of control over the target company requiring theacquisition of control over the target company requiring the
acquirer to make an open offer. Hence proxy fight can not be aacquirer to make an open offer. Hence proxy fight can not be a
sustainable tactics for hostile acquisition.sustainable tactics for hostile acquisition.

16. Tender OfferTender Offer
 A company usually resorts to tender offer when a friendlyA company usually resorts to tender offer when a friendly
negotiated transaction does not appear to be a viablenegotiated transaction does not appear to be a viable
alternative. In using tender offer, the bidder may be able toalternative. In using tender offer, the bidder may be able to
circumvent management and obtain control even when thecircumvent management and obtain control even when the
managers oppose the takeover. The costs associated with amanagers oppose the takeover. The costs associated with a
tender offer such as legal filing fees and publication costs,tender offer such as legal filing fees and publication costs,
make the tender offer a more expensive alternative than amake the tender offer a more expensive alternative than a
negotiated deal. The initiation of a tender offer usually meansnegotiated deal. The initiation of a tender offer usually means
that the company will be taken over although not necessarilythat the company will be taken over although not necessarily
by the firm that initiated the tender offer. Another firm mayby the firm that initiated the tender offer. Another firm may
enter the bidding process and seek to engage in the biddingenter the bidding process and seek to engage in the bidding
contest. This may in turn increase the cost of purchase.contest. This may in turn increase the cost of purchase.

17. Defense Tactics Used by theDefense Tactics Used by the
Target Company to avoidTarget Company to avoid
takeover effortstakeover efforts

18. Defence Tactics used by targetDefence Tactics used by target
CompanyCompany
 Crown JewelsCrown Jewels
 Poison PillPoison Pill
 People PillPeople Pill
 Scorched EarthScorched Earth
 Pac manPac man
 Green MailGreen Mail
 White NightsWhite Nights
 Grey NightsGrey Nights
 Golden ParachutesGolden Parachutes
 White Square DefenceWhite Square Defence

19. Crown JewelsCrown Jewels
 The target company sells its highly profitable or attractiveThe target company sells its highly profitable or attractive
business / divisionbusiness / division (called Crown Jewels)(called Crown Jewels) to make the takeoverto make the takeover
bid less attractive to the raider.bid less attractive to the raider.

20. Poison PillPoison Pill
 This is a strategy which upon a successful acquisition by theThis is a strategy which upon a successful acquisition by the
acquirer, would create a negative financial result and valueacquirer, would create a negative financial result and value
reduction for the acquirer.reduction for the acquirer.
 (i) The target company may issue rights / warrants to the(i) The target company may issue rights / warrants to the
existing shareholders entitling them to acquire large number ofexisting shareholders entitling them to acquire large number of
shares at discount in the event of acquirer’s stake reaches ashares at discount in the event of acquirer’s stake reaches a
certain level (say 30%). This is called ascertain level (say 30%). This is called as “Shareholders’“Shareholders’
Rights Plan” or “Flip Over”Rights Plan” or “Flip Over”
 The target company may add to its charter a provision thatThe target company may add to its charter a provision that
gives the current shareholders a right to sell their shares to thegives the current shareholders a right to sell their shares to the
acquirer at an increased price ( say 100% above last twoacquirer at an increased price ( say 100% above last two
week’s average price)week’s average price)

21. Poison PillPoison Pill
 The target company may borrow large long-term funds (bulletThe target company may borrow large long-term funds (bullet
loans repayable at the end of the term) from Banks / Financialloans repayable at the end of the term) from Banks / Financial
Institutions or other lenders, but would be repayableInstitutions or other lenders, but would be repayable
immediately with a high premium in case of a successfulimmediately with a high premium in case of a successful
takeover bid.takeover bid.
 The target company may borrow to pay a huge dividend toThe target company may borrow to pay a huge dividend to
existing share holdersexisting share holders (Leveraged Cash out).(Leveraged Cash out).
 The target company may buy back its shares using borrowedThe target company may buy back its shares using borrowed
funds. This will have a double effect: (i) Increasing Promoter’sfunds. This will have a double effect: (i) Increasing Promoter’s
stake (ii) Negative effect on cash flows (debt repayment). Thisstake (ii) Negative effect on cash flows (debt repayment). This
is known asis known as “Leveraged Recap” or “Poison Put”“Leveraged Recap” or “Poison Put”
 Entitling voting rights to Preference Stock holders.Entitling voting rights to Preference Stock holders.

22. People PillPeople Pill
 In this tactics, the current management team, key employeesIn this tactics, the current management team, key employees
threaten to quit en masse in the event of a hostile takeover.threaten to quit en masse in the event of a hostile takeover.
This can be an effective defense in certain specific cases andThis can be an effective defense in certain specific cases and
situations.situations.

23. Scorched EarthScorched Earth
 Scorched earth is originally a military tactics that involvesScorched earth is originally a military tactics that involves
destroying anything that might be useful to the enemy whiledestroying anything that might be useful to the enemy while
retreating from an area. As a takeover defense, it virtuallyretreating from an area. As a takeover defense, it virtually
destroys a company while it is being taken over or when it isdestroys a company while it is being taken over or when it is
likely to face a takeover threat. This could be achieved eitherlikely to face a takeover threat. This could be achieved either
through extreme form of poison pill or extreme form of crownthrough extreme form of poison pill or extreme form of crown
jewel tactics or through stripping of significant assets. Injewel tactics or through stripping of significant assets. In
India, this tactics can be used prior to an acquirer makingIndia, this tactics can be used prior to an acquirer making
public offer and making a public announcement thereof.public offer and making a public announcement thereof.
However, once such announcement is made, the takeoverHowever, once such announcement is made, the takeover
regulations do not permit asset stripping, etc, till the open offerregulations do not permit asset stripping, etc, till the open offer
is closed.is closed.

24. PacmanPacman
 The target company or its promoters start acquiring sizeableThe target company or its promoters start acquiring sizeable
holding in the acquirer / raider company, threatening toholding in the acquirer / raider company, threatening to
acquire the raider itself. This makes the acquirer run for coveracquire the raider itself. This makes the acquirer run for cover
and forces him to hammer out a truce. This tactic is possible inand forces him to hammer out a truce. This tactic is possible in
India prior to the acquirer hitting the trigger for open offer andIndia prior to the acquirer hitting the trigger for open offer and
making the public announcement thereof. Also the targetmaking the public announcement thereof. Also the target
company needs to take care that it does not trigger the opencompany needs to take care that it does not trigger the open
offer for the acquirer’s companyoffer for the acquirer’s company

25. GreenmailGreenmail
 The target company or the existing promoters arrange throughThe target company or the existing promoters arrange through
friendly investors to accumulate large stock of its shares with afriendly investors to accumulate large stock of its shares with a
view to raise its market price. This makes the takeover veryview to raise its market price. This makes the takeover very
expensive for the raider. In India this is possible; however, if itexpensive for the raider. In India this is possible; however, if it
is done in such a manner that the nexus between the existingis done in such a manner that the nexus between the existing
promoters and friendly investors who are accumulating thepromoters and friendly investors who are accumulating the
stock is proved, it may trigger an open offer by the existingstock is proved, it may trigger an open offer by the existing
promoters themselves.promoters themselves.
 Sometimes the existing promoters of the target company agreeSometimes the existing promoters of the target company agree
to buy back the shares being accumulated by the raider at ato buy back the shares being accumulated by the raider at a
substantial premium. In return the raider agrees that neither hesubstantial premium. In return the raider agrees that neither he
nor his associates shall acquire a sizeable stake in target for anor his associates shall acquire a sizeable stake in target for a
stipulated period. This is known asstipulated period. This is known as “Stand still Agreement”“Stand still Agreement”

26. White mailWhite mail
 White mail is another takeover defense strategy wherein theWhite mail is another takeover defense strategy wherein the
target company issues a large number of shares at a price quitetarget company issues a large number of shares at a price quite
below the market price to a friendly party. This forces thebelow the market price to a friendly party. This forces the
acquiring company to purchase these shares from the thirdacquiring company to purchase these shares from the third
parties to complete the takeover. This discourages the takeoverparties to complete the takeover. This discourages the takeover
as it becomes more difficult and expensive as the raider has toas it becomes more difficult and expensive as the raider has to
purchase shares from parties friendly to the target company.purchase shares from parties friendly to the target company.
Once the takeover attempt is averted, the target company mayOnce the takeover attempt is averted, the target company may
either buy back the issued shares or leave them floating in theeither buy back the issued shares or leave them floating in the
market.market.

27. Treasury StockTreasury Stock
 Treasury stocks are also known as reacquired stocks. These are stocks andTreasury stocks are also known as reacquired stocks. These are stocks and
shares bought back by the issuing company with the objective of reducingshares bought back by the issuing company with the objective of reducing
the volume of outstanding stock in the open market. This strategy isthe volume of outstanding stock in the open market. This strategy is
adopted by companies to protect themselves against a takeover threat. It isadopted by companies to protect themselves against a takeover threat. It is
also resorted to when the company feels that its shares are undervalued inalso resorted to when the company feels that its shares are undervalued in
the open market. The shares repurchased are either cancelled or held forthe open market. The shares repurchased are either cancelled or held for
reissue. If such shares are not cancelled they are known as Treasury Sharesreissue. If such shares are not cancelled they are known as Treasury Shares
or Treasury Stock. No dividend is paid against treasury stocks and theseor Treasury Stock. No dividend is paid against treasury stocks and these
stocks have no voting rights. Treasury stocks were issued during reversestocks have no voting rights. Treasury stocks were issued during reverse
merger of ICICI with ICICI Bank against the holding of ICICI , whichmerger of ICICI with ICICI Bank against the holding of ICICI , which
were later sold at a premium.were later sold at a premium.

28. Shark RepellentShark Repellent
 In this case, the target company makes special amendments toIn this case, the target company makes special amendments to
its bylaws that become active only when a takeover attempt isits bylaws that become active only when a takeover attempt is
announced. The objective of these special amendments is toannounced. The objective of these special amendments is to
make the takeover less attractive to the acquirer. Sharkmake the takeover less attractive to the acquirer. Shark
repellent is a repellent applied by deep sea divers to preventrepellent is a repellent applied by deep sea divers to prevent
sharks from attacking them. In a takeover situation, thesharks from attacking them. In a takeover situation, the
acquirer is a shark and the proposed amendments repel theacquirer is a shark and the proposed amendments repel the
shark to prevent the attack.shark to prevent the attack.

29. White KnightWhite Knight
 In this tactics, the target company or its existing promotersIn this tactics, the target company or its existing promoters
enlist the services of another company or group of investors toenlist the services of another company or group of investors to
act as a white knight who actually takes over the targetact as a white knight who actually takes over the target
company, thereby foiling the bid of the raider and retaining thecompany, thereby foiling the bid of the raider and retaining the
control of existing promoters. This is possible in India.control of existing promoters. This is possible in India.

30. White SquireWhite Squire
 A white squire is similar to a white knight. The only differenceA white squire is similar to a white knight. The only difference
is that a white squire exercises a significant minority stake, asis that a white squire exercises a significant minority stake, as
opposed to a majority stake. A white squire does not have anyopposed to a majority stake. A white squire does not have any
intention of getting involved in the takeover battle, but servesintention of getting involved in the takeover battle, but serves
as a figurehead in defending the target in a hostile takeover.as a figurehead in defending the target in a hostile takeover.
The white squire enjoys special voting rights for the equityThe white squire enjoys special voting rights for the equity
stake that it holds in the company.stake that it holds in the company.

31. Grey KnightGrey Knight
 In this tactics, the services of a friendly company or a group ofIn this tactics, the services of a friendly company or a group of
investors are engaged to acquire shares of the raider itself toinvestors are engaged to acquire shares of the raider itself to
keep the raider busy defending himself and eventually force akeep the raider busy defending himself and eventually force a
truce. This is also possible in India.truce. This is also possible in India.

32. Golden ParachuteGolden Parachute
 In this, a contractual guarantee of a fairly large sum ofIn this, a contractual guarantee of a fairly large sum of
compensation is issued to the top and / or senior executivescompensation is issued to the top and / or senior executives
of the target company whose services are likely to beof the target company whose services are likely to be
terminated in case the takeover succeeds. However, this isterminated in case the takeover succeeds. However, this is
actually not a tactics for defending the company from theactually not a tactics for defending the company from the
takeover but to ensure that the existing top management istakeover but to ensure that the existing top management is
well taken care of in case the takeover initiative becomeswell taken care of in case the takeover initiative becomes
successful.successful.

33. Killer BeesKiller Bees
 Under this strategy, the target company employs firms orUnder this strategy, the target company employs firms or
individuals to fend off a takeover bid. The target companyindividuals to fend off a takeover bid. The target company
wants to avert the takeover attempt and either is unable to dowants to avert the takeover attempt and either is unable to do
so on its own or does not want to be seen doing so. Hence itso on its own or does not want to be seen doing so. Hence it
follows this tactics.follows this tactics.

34. Benefits of TakeoversBenefits of Takeovers
 The Acquirer increases its sales, market share and revenuesThe Acquirer increases its sales, market share and revenues
 The acquirer through takeover ventures into new businessThe acquirer through takeover ventures into new business
segments and marketssegments and markets
 It reduces competitionIt reduces competition
 Helps in achieving economies of scale and scopeHelps in achieving economies of scale and scope

35. Disadvantages of TakeoversDisadvantages of Takeovers
 Reduces competitionReduces competition
 Results in job cutsResults in job cuts
 Conflict among managements and employees of acquirer andConflict among managements and employees of acquirer and
targettarget
 Acquirer may face hidden threats and undisclosed liabilitiesAcquirer may face hidden threats and undisclosed liabilities

36. Oracle Held at Bay by Peoplesoft’sOracle Held at Bay by Peoplesoft’s
Poison PillPoison Pill
 In June 2003, the second largest US software maker (behind Microsoft),In June 2003, the second largest US software maker (behind Microsoft),
Oracle Corp., initiated a $7.7 billion hostile bid for rival and third largest,Oracle Corp., initiated a $7.7 billion hostile bid for rival and third largest,
Peoplesoft Inc. Both firms market “back office” software that is used forPeoplesoft Inc. Both firms market “back office” software that is used for
supply management as well as other accounting functions. Lawrencesupply management as well as other accounting functions. Lawrence
Ellison, Oracle’s very aggressive CEO, doggedly pursued Peoplesoft,Ellison, Oracle’s very aggressive CEO, doggedly pursued Peoplesoft,
which brandished its powerful poison pill defense to keep Ellison at bay.which brandished its powerful poison pill defense to keep Ellison at bay.
The takeover battle went on for approximately a year and a half; all theThe takeover battle went on for approximately a year and a half; all the
while Peoplesoft was able to prevent Oracle from completing the takeoverwhile Peoplesoft was able to prevent Oracle from completing the takeover
due to the strength of its poison pill. Peoplesoft's board rejected Oracle’sdue to the strength of its poison pill. Peoplesoft's board rejected Oracle’s
offer as inadequate and refused to remove the poison pill. Oracle thenoffer as inadequate and refused to remove the poison pill. Oracle then
pursued litigation in Delaware to force Peoplesoft to dismantle the defense.pursued litigation in Delaware to force Peoplesoft to dismantle the defense.
Over the course of the takeover contest, Oracle increased its offer from anOver the course of the takeover contest, Oracle increased its offer from an
initial share offer price of $19 to $26 and then lowered it to $21 and theninitial share offer price of $19 to $26 and then lowered it to $21 and then
back up to $24. Peoplesoft also used a novel defense when it offered itsback up to $24. Peoplesoft also used a novel defense when it offered its
customers, in the event of a hostile takeover by Oracle, a rebatecustomers, in the event of a hostile takeover by Oracle, a rebate of up toof up to
five times the license fee they paid for the Peoplesoft software.five times the license fee they paid for the Peoplesoft software.

37. Oracle Held at Bay by Peoplesoft’sOracle Held at Bay by Peoplesoft’s
Poison PillPoison Pill
Peoplesoft defended this defense by saying that the hostile bid made itPeoplesoft defended this defense by saying that the hostile bid made it
difficult for Peoplesoft to generate sales; as customers were worried that ifdifficult for Peoplesoft to generate sales; as customers were worried that if
they purchased Peoplesoft software it would be discontinued by Oracle inthey purchased Peoplesoft software it would be discontinued by Oracle in
the event of takeover, as Oracle had its own competing products and nothe event of takeover, as Oracle had its own competing products and no
incentive to continue the rival software. Ironically , Oracle really wantedincentive to continue the rival software. Ironically , Oracle really wanted
Peoplesoft’s customer base, not the products or even many of itsPeoplesoft’s customer base, not the products or even many of its
employees. The takeover contest became very hostile with the managementemployees. The takeover contest became very hostile with the management
of the companies launching personal attacks against each other. However,of the companies launching personal attacks against each other. However,
eventually Peoplesoft succumbed in January, 2005. Oracle within a weekeventually Peoplesoft succumbed in January, 2005. Oracle within a week
sent payoff notices to thousands of Peoplesoft’s employees. While thesent payoff notices to thousands of Peoplesoft’s employees. While the
poison pill did not directly help Peoplesoft’s employees, Peoplesoft’spoison pill did not directly help Peoplesoft’s employees, Peoplesoft’s
shareholders benefited by the higher $10.3 billion takeover price.shareholders benefited by the higher $10.3 billion takeover price.
Employees indirectly benefited as the prolonged contest allowed many ofEmployees indirectly benefited as the prolonged contest allowed many of
them make alternative employment plans. It underscored the benefit of athem make alternative employment plans. It underscored the benefit of a
poison pill even if it did not necessarily hold off a determined bidder whopoison pill even if it did not necessarily hold off a determined bidder who
is willing to pay higher and higher prices.is willing to pay higher and higher prices.

38. Thank You