INDIAN INSTITUTE OF PLANNING AND MANAGEMENT NEW DELHI
IIPM TOWER, SATBARI,
CHANDAN HAULA, CHATTARPUR-BHATIMINES ROAD NEW DELHI
“DEFENSE STRATEGIES ADOPTED BY A COMPANY UNDER THREAT OF A TAKEOVER”
A report submitted for internal assessment of
Mergers and Acquisitions
Submitted to: Prof Ramakrishnan
Submitted by: Varun Sakhuja
Roll number: 99
Takeover defenses include all actions by managers to resist having their firms acquired. Attempts by target managers to defeat outstanding takeover proposals are overt forms of takeover defenses. Resistance also includes actions that occur before a takeover offer is made which make the firm more difficult to acquire. The intensity of the defenses can range from mild to severe. Mild resistance forces bidders to restructure their offers, but not prevent an acquisition or raise the takeover price substantially. Severe resistance can block takeover bids, thereby giving the incumbent managers of the target firm veto power over acquisition proposals. A natural place to begin the analysis of takeover defenses is with the wealth effects of takeovers. There is broad agreement that being a takeover target substantially Increases the wealth of shareholders. Historical estimates of the stock price increases of target firms are about 20% in the mergers and about 30% in tender offers. The large gain for target stockholders in takeovers seems to imply that all takeover resistance is bad. Resistance makes the firm more difficult to acquire. If the defense works, it lowers the probability of a takeover and stockholders are thus less likely to receive takeover premiums. Takeover resistance can benefit shareholders. Stockholders are concerned about the market value of the firm.
Takeovers can be:-
• FRIENDLY TAKEOVERS
• HOSTILE TAKEOVERS
The premise of takeover defense measures is that they should be ultimately for the protection of the interests of shareholders. Rights plans in the United States, which presuppose that shareholders finally decide to support or oppose takeovers through appointment or dismissal of directors at the general meeting of shareholders, are viewed as a mechanism that makes it possible to draw out from the acquirers and the incumbent management of the target companies better takeover terms and management proposals for shareholders. In other words, rights plans are understood as measures for protecting the interests of shareholders. Furthermore, in examining the essence of takeover defense measures, it should be recognized that hostile takeovers have positive effects (such as the disciplinary effect of their threat on management and possibility of enhancing the shareholder interests). Also, it should be borne in mind that deterring takeovers by implementation of takeover defense measures deprives shareholders supporting the takeovers of the opportunities of selling their shares to the acquirers.
TAKEOVER DEFENCE STRATEGIES
On most occasions a company would not like to be taken over because it wants to operate independently so the target companies try to work out strategies where they can prevent themselves from being taken over by the bidder companies so they start working on where they can defend themselves if such a situation happens. There are many strategies and in this report we would be discussing on some very important antitakeover strategies.
There are two types of defenses to avoid takeover
Pre-offer defenses: This is the preventive antitakeover measures taken by the targeted companies to avoid takeover in the process. It is much more effective because the precaution measure is taken in the beginning itself. It is further contains strategies like:
1. Poison Pills
2. Poison Puts
3. Corporate Charter amendments.
4. Waiting period.
5. Control Over the register.
6. Golden Parachutes.
7. Fair Price Amendments
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