Hostile Takeover Defenses

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ACKNOWLEDGMENT

The Project on MERGER AND ACQUISITION has been made and completed under the guidance of our respected professor Pushkal Pandey. He has helped us in the learning about this topic and giving us valuable insight knowledge about how the merger and acquisition is performs and how it works. I would like to thank him for giving his cooperation, guidance and enriching my thoughts in this field without his guidance I would not have able to complete this report on Merger and Acquisition.

Defenses against Hostile Takeovers
Bidder Strategies
Steps before making an offer:
* Find appropriate target
* Bidder makes acquisition criteria
* Firm’s acquisition team and external advisors come up with suggestions, make short list * SWOT analysis of:
* Quality of management

* Industry status of target

* Future technological and competitive evolution in industry

* Target’s financial & stock market performance

* Make valuation of target as it would be under bidder’s management, do sensitivity analysis * Get confidential guidance about antitrust implications * Will target litigate?
* What response will target management make?

* Personalities

* Motivations for sale

* Management’s relationship to target

* Desire for independence

* Post-acquisition expectations

* Stake in target

* Preference for cash or shares

* How receptive to bidder’s post-acquisition plans

Objectives of bid tactics:

* Win control of target

* Minimize control premium

* Minimize transaction costs

* Smooth post-acquisition integration

Options for gaining control:
* Toehold

* May lower cost of acquisition

* Increases chances of securing majority control in bid

* May give bidder same rights as other target shareholders, e.g., start proxy fight

* May profit from greenmail

* Discourage other bidders

* Can get stuck with less than controlling stake

* If toehold exceeds 20%, merger accounting not available

* If 10% or more purchased for cash within 12 months, bid may have to be for cash at highest price paid

* May give target advance warning, and target may be put ’in play’

* Casual pass

* May learn that target receptive to offer

* Gives target advance warning

* Bear hug

* Could result in negotiated deal

* May be waste of time, give target advance warning

* Open Market Purchase/Street Sweep

* More likely to be effective if shareholding is concentrated

* Legal limits on how much can purchase without making tender offer

* Some shareholders could hold out for high price, especially arbitragers

* Could suffer large losses if takeover attempt fails

* Tender Offer

Criteria:
* Active and widespread solicitation of public shareholders

* Solicitation made for substantial percentage of the stock

* Offer to purchase made at a premium over prevailing market price

* Terms of offer firm rather than negotiated

* Offer contingent on tender of fixed number of shares, often subject to fixed maximum number to be purchased

* Offer open only a limited time

* Offeree subject to pressure to sell his stock

* Public announcement of a purchasing program concerning target company precede or accompany rapid accumulation of large amounts of target company’s stock

* Used when friendly negotiations not a viable option

* Receive less information about target

* Tends to be more expensive

* Less smooth post-acquisition integration

* May lose target management

* Lower...
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