Takeover and Defense Tactics

Takeovers Takeovers are motivated by excessive greed, A takeover is a market rout for acquisition of company, The takeover rout is adopted when the target company oppose the merger, Control in target company is acquired by purchasing company through purchase shares from market by making a bid, In this way SEBI role becomes very important.

Friendly Takeovers Hostile takeovers A hostile takeover allows a suitor to bypass a target company's management unwilling to agree to a merger or takeover, A takeover is considered "hostile" if the target company's board rejects the offer, but the bidder continues to pursue it, or the bidder makes the offer without informing the target company's board beforehand, A hostile takeover can be conducted in following ways, A tender offer, Bear Hug, Proxy Contest. Before a bidder makes an offer for another company, It usually first informs that company's board of directors. If the board feels that accepting the offer serves shareholders better than rejecting it, it recommends the offer be accepted by the shareholders. It is characterized by bargaining until agreement is signed,

Bear Hug Bear Hug is also known as Lip Lock or Body Lock, This is a method used under hostile takeover, When target company management refuses acquirer's friendly offer, Then acquirer firm mount a pressure on target by threaten management to go directly to shareholders in market and, Will offer a price much more than its market value, Now in this case acquirer gives a bear hug and target has no option except accepting the proposal, Because the management has its fiduciary responsibility to the shareholders to take any decision in their favor, If management is not doing so then it may face litigation from shareholders.

Proxy Contest Proxy Contest is based on proxy voting, Proxy Vote : votes by one individual or institution as the authorized representative of another (Shareholder), This is again a method used under hostile takeover, When target company is defending itself by various means, Then acquirer try to replace the existing member in board of target company with its own choice member so that takeover may easy, For this acquirer company try to have the proxy voting right form shareholders, But as a matter of fact 80% of such effort failed in USA, The use of proxies is highly regulated in India by SEBI,

Tender Offer The tender offer is a public, open offer or invitation by a prospective acquirer to all shareholders of target company directly , To sell their stocks at a specified price during a specified time, The acquirer usually offer price which includes a premium over the current market price of the target company's shares, Acquirer company may offer Cash or other securities to the target company's shareholders,

Defense Tactics Blank Cheque; target company issues shares to existing promoters r friendly shareholders to increase the control of promoters group. Golden Parachute; a contractual guarantee of a fairly large sum of compensation is issued to the top and senior executives of target company whose services are likely to be terminated in case the take over succeeds. Green Mail; the promoters of target company accumulate large stock of its shares through friendly investors with a view to raise its market price. But the nexus of investors and promoters if proved then it may be trigger an open offer. Shark Repellents; the company changes its MoA & AoA to make take over impossible. Poison Pill; is used to create negative financial results to the acquirer and leads to value destructions. Pacman; the target company starts acquiring sizeable holding in the acquirer company to threat them. White knight; target company instruct its friend company to buy shares to reduce acquirer holding. Buy back;