Various example explained of Hostile Takeover Cadbury & Craft ArcelorMittal, Sanofi & Genzyme, L&T & Mindtree

1. HOSTILE
TAKEOVERBy Amit
Bitan Chakraborty
Shirshendu Adhikari
Rosalin Sahoo
Jasaswinee Panda
Manaswinee Panda
Nigam Panda
Pratyush Ratha
Saurabh Nair
Shivani Singh

2. HOSTILE
TAKEOVER-
INTRODUCTIO
N
A hostile takeover is an acquisition
of one company by another that is
accomplished by going directly to
other company shareholders or
fighting to replace management to
get the acquisition approved.

4. COMPANY
PROFILE
Mittal Steel
 Based in Netherlands
 Founded in 1989 as Ispat
International in Sumatra,
Indonesia.
 It was largest producer of
steel in terms of volume.
Arcelor
 Second largest producer of steel in
terms of turnover and output.
 Created by merger of two
companies:
o Acerlia (spain)
o Arbed (Luxemberg)
o Usinor (France

5. Motive
 The Offer was subjected to three conditions
o A minimum acceptance > 50%.
o Mittal steel shareholder approval and the Mittal
family undertaking vote of transaction.
o No disposal or acquisiton from Arcelor.
 The offer from Mittal => mixture of cash and stock.
 To terminate its biggest competitor
dominating the steel industry.
 Acquisition helps in companies improving
their
o Sourcing of raw materials.
o Access to more markets.
o Better utilization, and
o Better efficiency.
The Bid

6. REACTION TO THE BID
 The bid from Mittal steel caused a lot of opposition and many political party opposed to
Hostile Offer-
 The board of Arcelor stated that
o The company did not share the same strategic vision, business model or values as mittal
steel.
o Deal would have risking severe consequences on the group, shareholders, employees and
its customers.
 Indian Government Initiative
o The Indian Government felt need to protect and support Mittal steel, thus resulting in
that the Indian Trade Minister, Kamal Nathn, Publicly accused the European governments
of being racist and discriminate.

7. TAKEOVER DEFENSES
EMPLOYED BY ARCELOR
Develop a communication plan, to persuade the shareholder that the
company was better off without Mittal Steel’s involvement and not to
sell shares to Mittal steel.
Introduced a ‘2006 – 2008 plan’ with aim to ‘maximize value creation
for shareholders’ and the board of Arcelor even promised an increase
in results by 24% and generous bonuses.
Arcelor released a 13 Billion Euros merger plan with severstal, A
Russian company. This merger would have made the new Severstal-
Arcelor entity to big for Mittal steel to buy.

8. END RESULT
Mittal agreed to pay euro40.27 for each Arcelor share, almost double
the amount they first offered, and a merger between two giants
occurred.
Furthermore, Arcelor had to pay Severstal a fine of Euro 140 million,
as a result in falling to close a deal after negotiations with Russian
giant.

9. Hostile takeover
UK - based Cadbury Plc (Cadbury)
by
US - based Kraft Foods (Kraft)

10. COMPANY
PROFILE
KRAFT FOODS
• Established in: 1903 by James L.
Kraft
• Headquarters: Northfield, Illinois
• Major Markets: North America
• Revenue: $38,754 mil in 2009
(excluding Cadbury)
CADBURY
• Established in: 1924 by John Cadbury
• Headquarters: Uxbridge, United
Kingdom
• Major Markets: Europe and Asia
• Revenue: £5,975mil in 2009

11. ACQUISITION RATIONALE
KRAFT FOODS
• Build upon Cadbury's brand and heritage by investment and innovation
• Diversify geographically exploiting the European and developing markets
• Long-term growth strategy
CADBURY
• US business getting stagnant
• Benefit from the Kraft Foods’ global scope, scale and array of technologies
and processes
• Importance of scale in the food industry
Entering Emerging
Markets
Overcoming Entry
Barriers
Increased Market
Power

12. TIMELINE- KEY EVENTS
28 Aug ‘09
755p, but dismissed
07 Sept’ 09
745p, but dismissed
16 Sept’09
Warren Buffett
terms it “baddeal”
21 Sept’ 09
“put up or shut up”
30 Sept’09
Until 9th Nov tomake
offer
03 Nov’ 09
Kraft’s disappointing
results
18 Nov’09
Ferrero & Hershey
review bid
23 Nov’09
Speculationresults
in 819.5p
04 Dec’09
Offer of 713p
14 Dec’09
Cadbury increases
targets and dividend
12 Jan’10
Cadbury beattarget
19 Jan’10
Kraft seals deal for
£11.9 bn

13. FINAL OFFER
• Kraft offers £11.9bn
• Cadbury shareholders offered 500p in cash
• Also, 0.1874 Kraft stock for each share they own
• This values Cadbury at 840p per share
• Shareholders will also receive a special 10p dividend
• Cash now makes up 60% of the offer

15. GENZYME
SANOFI
AVENTIS
It is a French pharmaceuticals company which was established in
2004 after the merger .
In 2003 Sanofi merged with Aventis and formed Sanofi- Aventis.
Sanofi- Aventis has made drugs for cardio vascular
diseases,dermatology, diabetes and endrocrinology, etc.
It was established in 1981 by Sheridan Snyder and George M.
Whitesides.
Ceredase first effective treatment for Gaucher disease,
previously rare and potentially fatal genetic disorder. It was the
drug invented by Genzyme.
They faced criticism because it was expensive .
Some of the companies which Genzyme acquired are Medix
Biotech, Biometrics, etc

16. STRATER
GIC
IMPORTA
NCE OF
TAKEOVE
R
The French company Sanofi –Aventis wanted to
enter the American market by taking over
Genzyme.
The Sanofi- Aventis wanted to obtain the valuable
research or technologies of Genzyme corporation
The Genzyme had developed several drugs to
treat rare Genetic disorders. They also have
several drugs Research in pipeline.
The Sanofi- Aventis was eager to expand its
presence in what it believed was a lucrative niche.
So the Genzyme was prime target.

17. TAKEOVER
The Genzyme reported a sharp
drop in second quarter profit
because falling sales due to
manufacturing problems.
The friendly takeover failed as the
Genzyme Ceo and Board of
directors were not ready for
Negotiation. They thought they
were undervalued.
Sanofi –Aventis bought Genzyme
in 20.1 billion cash offer. The
company sweetened the deal
by offering shareholders
contingent value rights.
It also offered shareholders a
potential of 3.8 billion additional
payment.

19. THE
BACKGROUND
AT L&T
Excess Cash-
L&T currently had more than $2 billion in cash reserves.
The company was expected to add another $1.5 billion in terms of free cash
flow by the year 2020.
This excess cash was currently invested at a rate of 5%.
This was obviously dragging down the overall return on equity for the
company
The Failed Buyback Bid-
Mindtree was not the first choice for L&T when it came to deploying these
additional funds
The company wanted to buy back outstanding shares from the market
This $1.5 billion bid was foiled by the Securities and Exchanges Bureau of
India (regulator) and the regulator did not allow the buyback offer to go through
as after the buyback, the debt to equity ratio of L&T would have crossed 2:1.
This is against the compliance norms laid down by SEBI.

20. Excess Dividends
The company has already been paying excess dividends
The dividend paid in the year 2016 was a mind-boggling 33% of the annual
profit of the company
If dividends are raised , they cannot be reduced in the future without a sharp
reaction from the market and this was the reason why L&T did not choose to
take the dividend route
Offloading Non-Core Assets
L&T was also under pressure to increase its return on equity
The company’s return has fallen from 24% to as low as 9% in the past decade
The shareholders were hungry for more and this is why L&T is being forced to
sell off non-core assets and deploy the proceeds in high margin business like the
Mindtree

21. THE TAKEOVER PROCESS
 L&T acquired 20.4% stakes of Mindtree from VG Siddhartha who is the
founder of Café Coffee Day
 The company then buys from 25% stake available from the open market
 Lastly, they offered to all shareholders to sell their stake to L&T for Rs 980
per share and they acquired the shares of the company:
 UTI Asset Management Co. Ltd sold its full 2.97% stake in Mindtree to L&T
 Arohi Asset Management Pte Ltd sold its (2.74%) stake it held in Mindtree
 Singapore-based Nalanda Capital (10.61%)

22. CONTINU
ED..
 Amansa Holdings Pvt. Ltd (2.77%)
 Franklin Templeton Asset Management (India) Pvt Ltd
(1.06%)
 alternative investment funds (1.49%)
 The intent was to take control of as many shares as
possible from the free float
L&T were able to acquire 60.06% stake in the Mindtree and
completed the hostile takeover and were the new promoters
of the Mindtree

23. SWRAJ PAUL VS. ESCORTS, DCM SHRIRAM

24. PARTIES INVOLVED
Target Company 1 - DCM Limited headed by Bharat Ram and Charat Ram.
Target Company 2 – Escorts controlled by H.P. Nanda and Family.
Acquirer – Swraj Paul through CAPARO Group.

25. BACKGROUN
D
 The Shri Ram family owned 10% stake in DCM and Nanda’s owned < 5% stake in Escorts.
 Even this relatively small holding gave them a controlling interest because of the support
given by public financial institutions and the backing, cultivated over the years, of politicians
and the officialdom.
CAPARO attempt to Acquisition
13 companies of CAPARO Group (belongs to Swaraj Paul) has acquired 80,000 equity shares
of DCM and 75,000 of Escorts.

26. DCM & ESCORTS REACTION
The management of
DCM and Escorts refuse
to register the shares.
Further they have
brought to the notice of
RBI, the violation done
by the Company
belonging to CAPARO
group i.e.
Violation of circular
dated May 2, 1983 after
which no non-resident
could invest and hold
more than 5% of Indian
Company share capital.
No permission obtained
from RBI for Investment
(this was the reason why
Swraj Paul did not
approach CLB when
Escorts and DCM refuse
to register the shares.)
The RBI could give its
permission only after it
has satisfied that
CAPARO was a genuine
company with atleast
60% Non- Resident
Indian shareholding.

27. POLITICAL MOVE IN FAVOUR OF SWRAJ PAUL
• Mr. Paul Joseph, joint controller of DSE sent a communication to all Stock Exchanges
throughout the country to step up the registration of shares in CAPARO Company name
•It brought a variety of pressure to bear on Dr. Manmohan Singh to clear CAPARO purchases
retrospectively.
•Later on RBI refer the matter to the Ministry of Finance for the final decision.
•The finance Ministry cleared the CAPARO group acquisition for investment upto 1% each in
Indian Company.
Political Move in favour of DCM
Shri Ram family members use their connection in Central Government to persuade Paul to give up his bid through a
number of private meetings.

28. Ultimately Both DCM and Escorts management were able to abort
the Takeover bid and CAPARO group lost on account of
controversial purchase of shares.