Term Paper of FIN-5211: Corporate Governance & Restructuring

Term Paper On

Takeover T

actics

Kawsar Ahmed Shiblu

Lecturer

Department of Finance

Faculty of Business Studies

Jagannath University, Dhaka

Sultan Ahmed Khan

Representative of the group

Epimetheus

MBA 3rd Batch

Department of Finance

Faculty of Business Studies

Jagannath University, Dhaka.

Submitted By

Submitted To

Group Name: Epimetheus

Name of the members of the group:

Serial No: Name of the members of the group Roll Number

01 Sultan Ahmed Khan M120203050

02 Md. Anik Mahmud M120203073

03 Mohammad Mahmudul Hasan M120203014

04 Sakhawat Hosain Chowdhury M120203081

05 Md. Mofazzal Hossen M120203064

06 Nahid Sultana M120203043

07 Nusret Jahan Nupur M120203006

Group Representative: Sultan Ahmed Khan.

Contact : epimetheus.jnu@gmail.com

Web : epimetheus.yolasite.com

November 16, 2014

The Course Instructor

Kawser Ahmed Shiblu

Lecturer

Department of Finance

Jagannath University, Dhaka.

Sub: Thanks giving letter to the respective faculty member.

Sir,

We are the student of Department of Finance (3rd batch) of Jagannath University, Dhaka &

also from the group named “Epimetheus”. We are very much enthusiastic about our

presentation. We are really happy to have such a presentation of challenging and interesting

like this presentation & also thanks to you for making us worthy for corporate. Our topic is

“Takeover Tactics”. We have learned many things from this topic which will help us in future

to conduct as a finance official. There were some obstacles we have faced at the time of

collecting data about our topic. But we have overcome all the obstacles by the endeavor effort

by each member of our group and tried our best to give an overview of our topic.

We the group “Epimetheus” tried our best to make this term paper impeccable, interesting,

informative and enjoyable by the help of electronic and print media in association with our

honorable teacher, mentor, counselor, instructor and advocate “Kawser Ahmed Shiblu”. We

are really grateful to him. We had limitations at the time preparing presentation. So mistakes

may occur in our demonstration of our presentation. We hope that, you will exempt our

mistakes.

Thanking in anticipation,

Yours Fidel,

Sultan Ahmed Khan

Group Representative,

Group-“Epimetheus”

MBA 3rd Batch

Department of Finance

Jagannath University, Dhaka.

First of all we would like to thank the Almighty for giving us the strength, and the aptitude to

complete this report within due time. We are deeply indebted to our course teacher, mentor,

and counselor, Kawser Ahmed Shiblu for assigning us such an interesting topic named

“Takeover Tactics”. We also express the depth of my appreciation to our honorable course

teacher for his suggestion and guidelines, which helped us in completing this term paper.

When it comes to a takeover then it is better to find a way without bloodshed. The paths away

from the hostile bidder are a bear hug, a tender offer, and a proxy fight. Bear hug is a type of

takeover where a takeover bid that is potentially so attractive to the target company's

shareholders that its management has to consider it. This is when the bidder makes a very

high offer without previous warning directly to the target in an attempt to gain quick

acceptance by the target’s management and board, and to prevent other bidders from

attempting to take over the target. The offer is therefore intended to be so attractive that the

target’s management has no choice but to recommend to their shareholders to accept the bid.

A bear hug puts pressure of the directors because it carries with it the implication that if the

offer is not favorably received, a tender offer will follow. There are several variations of a

tender offer, such as the all-cash tender offer and the two-tiered tender offer. In recent days

firm maintain a strong defense mechanism so the effectiveness of tender offer changes over

time. It also rely on the availability of the firms financial positions. Moreover, the legal

environment of a country pursues deeply the takeover tool. Laws regulating tender offers not

only set forth the rules within which an offer must be structured but also provide strategic

opportunities for both the bidder and the target.

It is beyond argue that tender offer grew very fast when large corporation tends to follow the

junk bond financed tender offer. But at the course of time junk bond followers were forced to

look somewhere else and the golden tactics of proxy fighter began. When a group of

shareholders are persuaded to join forces and gather enough shareholder proxies to win a

corporate vote. A proxy contest occurs when the acquiring company attempts to

convince shareholders to use their proxy votes to install new management that is open to

the takeover. The technique allows the acquired to avoid paying a premium for the target.

This is referred to also as a proxy battle. Proxy fray maintains different company charter than

tender offer. It is afar argument that a proxy fray is a distant further less expensive alternative

to tender offer. In addition, proxy battle with tender offer generates more opportunities to

dismantle the targets defense and making it vulnerable to a less well financed tender offer.

Proxy fighters always attempts to associate with increased shareholders wealth. The gain

seems to be related to the acquisition with the management turnover. On the contrary,

sometimes proxy fray leads to an unproductive results but it always revolves with the gain of

the firm. But, financial situation backed with more with equity and less debt, proxy fray fails

and here launches the territory of tender offer again. Just as with antitakeover defenses,

takeover tactics are continually evolving. Bidders are forced to adapt to the increasingly

effective defenses that targets have erected

NAME Page no

Executive Summary

Chapter-1

Introduction 01

Rationale of the Report 01

Objective of the Report 01

Scope of the Report 02

Methodology 02

Limitations 02

Chapter -2

Understanding of Takeover 03

Takeover Steps 04

Tender Offer & Factors to Establish 07

History of Tender Offer 07

Reason of Using Tender Offer 08

Success Rate of Tender Offers 09

Forms of Tender Offer 09

Cash v/s Securities Tender Offers 10

Ten-Day Window of the Williams Act 11

Response of Target Management & Their

Honesty

11

Creation of Tender Offer Team 12

Understanding of Two-Tiered Tender Offer 14

Regulation of Two-Tiered Tender Offer 15

Effect of Two-Tiered Tender Offer on Wealth 16

Any-and-Any v/s Partial Tender Offers 16

Premiums 18

Common Questions 19

Open Market Purchase & Street Sweeps 20

Advantages of Open Market Purchase 21

Advantages of Tender Offer over Open

Market Purchase

21

Arbitragers and Takeover Tactics 22

Understanding of Proxy Fight 23

Historical Information 24

Mechanism of Proxy Fight 25

The Consequence of Event for Proxy Voting 26

Types of Proxy Contest 27

Regulation of Proxy Contest 28

Proxy Contest: The Insurgents’ Viewpoint 29

Target Size and Proxy Success 30

Proxy Fight Process 30

Voting Analysis (Types of Votes) 32

Cost of Proxy Fight 33

Shareholder Wealth Effect of Proxy Contest 34

Factors to be Understand 34

Determination Between the Tender Offer &

Proxy Fight

35

Chapter -3 Findings of the Paper 36

Bibliography 36

Chapter- 01

Introduction

The term takeover means bidding for a target company by an acquiring company to take

control over the target present board of directors. If the takeover goes through, the acquiring

company becomes responsible for all of the target company’s operations, holdings and debt.

When the target is a publicly traded company, the acquiring company will make an offer for

all of the target’s outstanding shares.

In this term paper we tried to show how to takeover process can be through different tactics.

Although it seems unfair but it is good when it is the question about corporation performance.

We tried to show its impact over the related parties.

Rationale of Report

The term paper is assigned by our course teacher Kawser Ahmed Shiblu as a part of our

“Corporate Governance & Restructuring” course. The topic of our report is “Takeover

Tactics”. By conducting this report we can enhance our knowledge and skill to apply various

takeover tactics in professional life by using both friendly and hostile takeover depending on

situation. The report has given us a chance to raise our quality in developing strong

management in case of being takeover. By doing so, we as a stockholder can push present

board of directors to work for the betterment of all shareholders.

Objectives of the Report

Primary objective

The main objective of the report is to understand about different takeover tactics.

Secondary objective:

The report has some following objectives:-

Takeover steps.

Understand Tender Offer, Open Market Purchase & Proxy Contest

Forms of Tender Offer

Effect on shareholder wealth

Arbitrators and takeover tactics

Effect of different takeover tactics

Scope

There were huge scopes to work in the area of this Report. Considering the dead line, and

exposure of the paper has been wide-ranging. The report “Takeover Tactics” has covered

how a bidder can bid to take control over the target corporation management. Even if the

bidder fails to take control over the target firms management what will be its impact on both

bidders and target firms shareholders. By preparing this report, we got a chance to work on

one of the most common business practices for managing rivals and increasing value of

shareholders to the firm.

Methodology

We have used the concept of the course, information of several companies both national &

international.

Tools

We have used Microsoft word version 2013 to capture this information.

Source of Data

Here the secondary sources of information were used. The secondary sources are:

Website of different organizations

Empirical evidence from course text.

Limitation

Because of time shortage many related area can’t be focused in depth. Beside this website in

different organization of Bangladesh contains poor information. Moreover there observed

less sharing tendency from the HR officials of different target firm. Even both SEC and many

law firms haven’t publish list for confidentiality and for market impact.

Chapter- 02

Understanding of Takeover

When an acquiring company makes a bid for a target company the process is known as

takeover. A takeover is the purchase of one company (the target) by another (the acquirer,

or bidder). If the takeover goes through, the acquiring company becomes responsible for all

of the target company’s operations, holdings and debt. When the target is a publicly traded

company, the acquiring company will make an offer for all of the target’s outstanding shares.

Type of takeover

In the present world there found four types of takeover. That are

Friendly Takeovers

Hostile Takeovers

Reverse Takeovers

Backflip Takeovers

A "friendly takeover" is an acquisition which is approved by the management. Before a

bidder makes an offer for another company, it usually first informs the company's board of

directors.

A "hostile takeover" allows a bidder to take over a target company whose management is

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 directly after having announced its firm intention to make an offer.

A "reverse takeover" is a type of takeover where a private company acquires a public

company. The purpose being for the private company to effectively float itself while avoiding

some of the expense and time involved in a conventional IPO.

A "backflip takeover" is any sort of takeover in which the acquiring company turns itself

into a subsidiary of the purchased company. This type of takeover can occur when a larger

but less well-known company purchases a struggling company with a very well-known

brand.

Takeover Steps

Establishing a Toehold

Casual pass

Bear Hug

Tender Offer

Open Mkt

Proxy Contest

Establishing a Toehold

An initial step that is often pursued before using the various takeover tactics that are at the

disposal of a hostile bidder is to begin an initial accumulation of the target’s shares. In doing

so, the bidder seeks to establish a toehold from which to launch its hostile bid. One of the

advantages of such share purchases is that if the market is unaware of its actions, the bidder

may be able to avoid the payment of a premium. Because this lowers the average cost of the

acquisition.

In addition, it may provide the bidder with some of the same rights that other shareholders

have, thus establishing a fiduciary duty, which the board would now have in its dual role as

the hostile bidder and as the target shareholder.

This is why target defenses that relate to share acquisitions are exclusionary and usually leave

out the accumulator/hostile bidder. This is often a subject of litigation between the company

and the bidder.

Casual Pass

Before initiating hostile actions, the bidder may attempt some informal overture to the

management of the target. This is sometimes referred to as a casual pass. In most takeover

battles, the target tries to buy more time while the bidder seeks to force the battle to a quick

conclusion. The way of taking more time-

Managers of potential target companies are often advised by their attorneys to not engage in

loose discussions that could be misconstrued as an expression of interest. They are often told

to unequivocally state that the target wants to remain independent.

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