Topics: Stock, Takeover, Corporate finance Pages: 3 (739 words) Published: June 7, 2006
. How should Day respond to Desert Partner's tender offer?

Day has to think in terms of maximizing shareholder value. Day should reject the offer and here is why –

USG has been a takeover target in the past driven by its steady cash flow, low operating costs, strong market share and thought to be undervalued by many analysts.

Any take over is possible for the right price – if at all rejecting the takeover bid will strengthen USG's negotiation strategy and encourage the tendering company to increase their price. The bid was considered to be unsolicited, coercive and inadequate.

Desert Partners has indicated a willingness to increase their tender offer to $50.00 per share in cash, debt, and stock. This change is not official and we feel that this makes their true intentions uncertain. If Desert Partners is going to increase their offer to $50.00 with sufficient certainty, then the takeover plan may be more advantageous than the recapitalization plan from the USG shareholders perspective.

USG has to seriously consider the viable option of implementing the proposed recapitalization. USG's board of directors proposed a leveraged recapitalization that would pay a cash dividend of $37 per share, $5 per share in the form of a payment-in-kind debenture and stub stock.

Day should weigh the value to shareholders under both plans and decide which one will give the best shareholder benefit.

Is the proposed recapitalization the best response?

There are two answers to this question. USG's board debated a number of alternatives. They considered repurchasing additional stock, selling equity to a friendly third party or selling the entire company to a friendly acquirer. In fact, U.K. based BPB industries was a possible ‘White Knight".

However, analysts have also drawn attention to the fact that the proposed recapitalization would burden the company with debt, forcing it to sell profitable business units. USG will go from a company that is virtually...
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