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 ’
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Editor's Notes
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.
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