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Electronic copy available at: http://ssrn.com/abstract=1717769Electronic copy available at: http://ssrn.com/abstract=1717769
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
ANTI-TAKEOVER AMENDMENTS| AN OVERVIEW: AS MERGER
MANAGEMENT TECHNIQUES IN PUBLIC M&A DEALS
SWAPNESHWAR GOUTAM
B.A. LLB (HONOURS)
Email: [email protected];[email protected]
Abstract :
This article provides explorative study covering under five heads;
Firstly, introductory approach on Anti-takeover Amendments;
secondly, Types of Anti-Takeover Amendment, stress has been laid
on the four major types of anti-takeover amendments. Thirdly, the
analysis of tactical strategies provisions under Indian Companies
Act, 1956 as one of the only measures to tackle threat of takeover bid.
Fourthly, Anti-takeover as a means of authorization of preferred
stocks used by management and lastly, antitakeover amendment as
a tool of corporate policy and lastly, why there is a need of sound
environment.
INTRODUCTION
It is often proposed that the best defense mechanism is anti-takeover
amendments to the company's article of association, popularly called 'shark
repellants'. Thus by the amendments of the AOA of a company, the anti-
takeover mechanisms is used as quality means of technique as of the
sophisticated means of takeover defence in cultivating the sound environment by
Electronic copy available at: http://ssrn.com/abstract=1717769Electronic copy available at: http://ssrn.com/abstract=1717769
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
amending AOA have to be voted on and approved by shareholders. This practice
consists of the companies changing theirs regulations, rules, byelaws etc., to be
less attractive corporate bidder. Generally, it can be said one of the safest
techniques of protecting managerial control of the firm through merger, tender
offer or by replacement of the board of directors.
This paper also highlights the need of sound regulations under the code
elevating and molding sound business environment in public M&A deals. Overall
study is based on 'Anti-Takeover Amendments' defence mechanism and how far
the Indian laws & regulation's governing with M&A dealing call for more adequate
defense techniques and restructuring for public M&A deals and promoting sound
governance to domestic as well cross border M& A, deals taking place in
domestic market. The sound defence mechanism techniques absence can be
easily felt and found under present takeover code. Restructuring and
reorganization mechanism in India is lacking from adequate quality defense
technique that have been kept separate from the increasing developed strategies
and the framework to demonstrate, how the entire dazzling panoply of activities
can be employed as takeover defense against the increased value of corporate
restructuring and organization.
In a hostile tender offers made directly to a target company's shareholder, with or
without previous overtures to the management, has been considerable interest in
devising defense strategies by actual and potential targets. Defense can take the
form of fortify one self, i.e., to make the company less attractive to takeover bids
or more difficult to take over and thus discourage any offer being made.
By and large, defensive mechanisms are restored to perceived threat against the
company, ranging from early intelligence that a 'rider' or any acquirer has been
accumulating to the company's stock to an open tender offer. Adjustments in
asset's and ownership structure may also be made even after a hostile takeover
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
bid has been announced. A mounting defense mechanisms like 'antitakeover
amendments' which are used by the company's amending their constitutions/
Article of Association, which is popularly called as 'shark repellents'. Thus by
amending AOA of a company, the antitakeover amendments can be implied
which have to be voted on and approved by the shareholder. The practice
consists of the company changing the articles, regulation, bye laws, etc, to be
less attractive to the corporate bidders. This article purports, to examine the utility
and affluence of exercising anti-takeover amendment which are also known as
"Shark Repellants", it is one of the defensive mechanisms used to protect a
company management. This defense is against the takeover bid, anti-takeover
amendment is to be exercised by companies as a one of the tactical strategies to
stave off takeover bid.
It's one of the swift modes which have been increasingly utilized by the BOD or
directors, by exercising their statutory power as protective strategies in the
company from take-overbids which will consequently facilitate to check them and
thwart away the bids. It will also implement new conditions on the transfer of
managerial controls over the firm through a merger, tender offer, or by
replacement of board of directors. It is one the most utilized strategies adopted in
USA and raising one in India by the companies by changing and amending their
bye-laws and regulations to be less attractive for the corporate raider company.
Overall approach is to highlight the critical issues of this defensive mechanism
used by companies, the impact of anti-takeover amendment on the financial
performance and long term managerial decision making.
AN INTRODUCTORY APPROACH ON; "ANTI-TAKEOVER AMENDMENT"
THE CONCEPT
Anti-takeover provisions took on a variety of forms, with an corporate
charter/constitution or articles of associations as one of the means for
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
implementing effecting defense mechanism popularly called as shark repellant.
Anti-takeover amendments are among the most common anti-takeover
provisions which are most frequently in used as defense in corporate defence
mechanism.1 Generally, it's believed that role of antitakeover amendments in
influential determination of managerial investment behavior. Antitakeover
amendments are one of the means by which long-term employment contracts
may be created.2 Several other factors, such as insider ownership and insider
representation on the board of directors, which could help to create long-term
employment contracts, are not explicitly examined in this study. Some
proponents of antitakeover amendments believe that such contracts protect
management from the potentially disruptive effects of takeovers, enabling them
to focus on long-term strategic decisions without the threat of either loss of firm
control or job displacement.
Therefore, antitakeover amendments reduce the number of myopic decisions
made by managers.3 Critics of antitakeover amendments argue that by removing
the threat of takeover, anti-takeover amendments also remove the disciplining
mechanism of the takeover market.4 Anti takeover amendments must be voted
on and approved by shareholders. Although 95% of anti takeover amendments
proposed by management are ratified by shareholders, this might be because a
planned amendment might not be introduced if management is unsure of its
success.5 Failure to pass might be taking as a vote of no confidence in
incumbent management and may provide a platform for a proxy fight or takeover
attempt where none had existed before.
The evidence provided that institutional shareholders such as banks and
insurance companies were more likely to vote with management on anti takeover
amendments than others such as mutual funds and college endowments.
Brickley, Lease and Smith, in their research found that block holders more
actively participate in voting than non-blockholders and might oppose proposals
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
that appear to harm shareholders.6 Amendments having the most negative effect
on stock price (amendments other than fair-price amendments) are adopted by
firms with the lowest percentage of institutional holdings and the highest
percentage of insider holdings. Jarrell and Poulsen, suggested that these results
helped explain how harmful amendments receive approval of shareholders. The
evidence also suggested that block holders do playa monitoring role. Institutional
holders are sophisticated and well informed, so they vote in accordance with their
economic interest more consistently than less well informed small investors.7
As discussed above rationale can to be drawn that, antitakeover amendments
are generally to impose new conditions on the transfer of managerial control of
the firm through a merger or tender offer or by replacement of the board of
directors. Anti takeover defenses: With a high value of hostile takeover activity in
recent years, takeover defenses both premature and reactive have been restored
to by the companies.
Anti-takeover amendments, which both facilitate managerial entrenchment and
provide protections supporting informal agreements, are beneficial overall.8 Anti
takeover defenses are widely disputed as anti investor. These strategies can be
costly to the firms like increasing the leverage, selling firm's important asset to
make the target firm unattractive. Regulator's ambiguity on this issue can be best
understood from the Euro-Shareholder Guidelines (2000)9, which states that
"anti-takeover defenses or other measures which restrict the influence of
shareholders should be avoided".10 In my understanding apropos, of using anti-
takeover amendments as defensive mechanism is one of dynamics character
framework which is adopted by the corporate firms as a defensive step, when it
comes to know that corporate raider as has been making efforts for takeover.
TYPES OF ANTI-TAKEOVER AMENDMENTS MECHANISMS;
A CRITICAL APPROACH
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
This part deals with the various other mechanisms available as modes for the
corporate firm's corporate character. Strategic measures which are available
under the anti-takeover amendment which are apropos to be used as a defense
mechanism. There are four major types of anti-takeover amendments which are
used an effective means of antitakeover amendments which are highlighted in
this part.
SUPERMAJORITY
Supermajority provisions typically increase the shareholder approval requirement
for a merger to the range, thus superseding the approval requirement of the
charter of the state in which the firm is incorporated.11 Supermajority
requirements may block a bidder from implementing a merger even when the
bidder controls the target's board of directors, if the bidder's ownership remains
below the specified percentage requirement.12 Supermajority provisions raise the
cost of a hostile takeover and encourage potential bidders to deal directly with
the target company's board of directors, which typically has the option to waive
the provision if a majority of directors approves the merger (a so-called `board-
out provision'). Pure supermajority provisions would seriously limit the
management's flexibility in takeover negotiations.13
POISON PILLS
The classic 'poison pill strategy' (the shareholders' rights plan) is the most
popular and effective defense to combat the hostile takeovers. Under this method
the target company gives existing shareholders the right to buy stock at a price
lower than the prevailing market price if a hostile acquirer purchases more than a
predetermined amount of the target company's stock. Poison pill provisions are
the most recent and perhaps the most controversial of the antitakeover
provisions. Poison pill provisions provide target shareholders the right to
purchase additional shares at a discount or to sell shares to the target at a
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
premium if certain ownership changes occur, such as the acquisition of a
specified percentage of the firms shares by a bidder considered hostile by
current management.14The target shareholder's right to purchase shares at a
discount is known as a flip-over plan.15
Moreover, a poison pill is important discussing how a company could put in a
provision in its articles whereby a hostile acquirer who succeeds in taking control
of that company and/or its subsidiaries is prohibited from using the company's
established brand name. It is believed that different Tata Companies have in
place an arrangement with the Tata Sons holding entity, whereby any hostile (or
otherwise) acquirer of any of those entities is not permitted to make use of the
established Tata brand name. Consequently, the bidder might be able to
takeover the target Tata Company but will be shortchanged as it will not be
entitled to a significant bite of its valuation -the valued brand name. 16
The right to sell shares at a premium is known as a `back end plan'.17 The poison
pill is considered the most potentially harmful antitakeover measure since
shareholder approval is not required to adopt poison pill provisions and
management has full discretion in determining when the poison pill provision is
applicable.18 The purpose of this move is to devalue the stock worth of the target
company and dilute the percentage of the target company equity owned by the
hostile acquirer to an extent that makes any further acquisition prohibitively
expensive for him.
FAIR PRICE AMENDMENT
Fair-price amendments are supermajority provisions with a board-out clause and
an additional clause waiving the supermajority requirement if a fair price is paid
for all purchased share. The fair price commonly is defined as the highest price
paid by the bidder during a specified period and sometimes is required to exceed
an amount determined relative to accounting earnings or book value of the
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
target. Thus, fair-price amendments defend against two-tier tender offers that are
not approved by the target's board. A uniform offer for all shares to be purchased
in a tender offer and in a subsequent cleanup merger or tender offer will avoid
the supermajority requirement. Because the two-tier tender offer it is not
essential in successful hostile takeovers, the fair-price amendment is the least
restrictive in the class of supermajority amendments.19
CLASSIFIED BOARDS
Another major type of Antitake over amendment provides for staggered or
classified boards of directors to delay effective transfer of control in a takeover.
To delay effective transfer and control in a takeover, variations on anti-takeover
amendment relating to the board of directors include provisions prohibiting the
removal of directors. Except for cause and provision fixing the number of
directors allowed preventing "packing" the board.20
AUTHORIZATION OF PREFERRED STOCK
The board of directors is authorized to create a new class of securities with
special voting rights. This security, typically preferred stock, may be issued to
friendly voting rights. The security preferred stock, may be issued to friendly in a
control contest. Thus, this device is a defense takeover bid, although historically
it was used to provide the board of directors with flexibility in financing under
changing economic conditions. Creation of a poison pill security could be
included in his category but generally it's excluded from and treated as a different
defensive device.
ANTITAKE TAKEOVER AMENDMENTS IN INDIA
Anti-takeover provisions under Indian law could prevent or deter an entity from
acquiring the Company. Indian takeover regulations contain certain provisions
that may delay, deter or prevent a future takeover or change in control of the
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
Company. These provisions may discourage a third party from attempting to take
control of the Company. Consequently, even if a potential takeover of the
Company would result in the purchase of the equity shares at a premium to their
market price or would otherwise be beneficial to shareholders, it is possible that
such a takeover would not be attempted or consummated because of Indian
takeover regulations.
In Indian company law regime, the scope for such amendments is highly
restricted. Sec. 255 of the Companies Act, 1956, which says about the
appointment of director at general meeting; it says appointment of directors at
general meeting, it is designed to eradicate the mischief Caused by perpetual
managements. At an AGM only one-third of the directors of the company, whose
offices are determinable by retirement, will retire. Therefore putting the example
in the Indian context, in case of 9 directors, 3 can be made permanent directors
by amending the articles i.e. one-third can be given permanent appointment,
under Section 255.21 Thus the acquirer would have to wait for at least three
annual general meetings before he gains control of the board. But this is subject
to Section 284, which provides that the company may by an ordinary resolution,
remove a director before the expiration of his period of office. Thus any provision
in the articles of the company or any agreement between a director and a
company by which the director is rendered irremovable from office by an ordinary
resolution would be void, being contrary to the Act. Therefore, to ensure
domination of the board of the target management, there needs to be strength to
defeat an ordinary resolution.22
PREVIOUS UNDER DIP GUIDELINES
The DIP Guidelines also provide that the right to buy warrants needs to be
exercised within a period of eighteen months, after which they would
automatically lapse. Thus, the target company would then have to revert to the
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
shareholders after the period of eighteen months to renew the shareholders'
rights plan. Without the ability to allow its shareholders to purchase discounted
shares/options against warrants, an Indian company would not be able to dilute
the stake of the hostile acquirer, thereby rendering the shareholders' rights plan
futile as a takeover deterrent.23 As seen above in the previous chapters, on the
discussion of various amendment defenses mechanism for the poison pill
strategy to work best in the Indian corporate scenario certain amendments to the
prevalent legal and regulatory framework are required. Importantly a mechanism
must be permitted under the Takeover Code and the before amendment of DIP
Guidelines which permits issue of shares/warrants at a discount to the prevailing
market price. These amendments would need to balance the interests of the
shareholders while allowing the target companies to fend off hostile acquirers.24
That said, history is ripe with examples of how a little legal ingenuity and a few
pre-emptive strategies can fend off the advances of the most ardent hostile
acquirers. As mentioned earlier in this article series, one of the advantages of the
poison pill strategy is that there is no rigid structure to it and it can be tailored to
suit the particular needs of a company; as a result, Indian companies are not
restricted to adopt the classic version of the pill i.e., the shareholders' rights
plan.25
UNDER THE ICDR REGULATION, 2009
New provision which are included by caring out amendment under the new ICDR
Regulations, 200926; the AOA and MOA of the company must comply with the
DIP guidelines Disclosure about the name and type of organization, brief
description of the business of the entity concerned and nature and extent of
interest of the promoters shall be given in a tabular form in respect of the
following entities irrespective of whether they are under the same management
as per Section 370(1B) of the Companies Act. Under the heading of related party
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
transaction enterprises in which a substantial interest in the voting power is
owned, directly or indirectly, by any person described in (c) or (d) or over which
such a person is able to exercise significant influence. This includes enterprises
owned by directors or major shareholders of the issuer.
Under Clause 4.51 of ICDR regulation which added up by the amendment to the
Takeover Regulations and Listing Agreement that promoters are required to
make disclosure about the pledged shares. The Existing provisions of the DIP
Guidelines reflects the decision of the Board taken having regard to the changed
circumstances. Accordingly, this recommendation of the Committee is not
incorporated in the ICDR regulations. Under the recently SEBI(ICDR)
Regulations, the exercise price of the warrants must be the average of the
weekly high and low of the closing price during the six months or the two weeks
preceding the date when the general meeting of the shareholders is held to
consider the proposed issue. Additionally, the ICDR Regulations require 25% of
the price payable for the warrants to be made upfront, which amount is forfeited if
the warrants are not allotted within a period of 18 months.Anti-takeover
amendments are basically traditional takeover defenses Indian Companies.
EMPLOYEE STOCK OPTIONS SCHEME (ESOS)
Another variation of the poison pill that may be explored in India brings the
Employee Stock Options Scheme (ESOS) into action. ESOS is governed by the
SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1997, whereby a company granting options to its employees
pursuant to ESOS have the general freedom to determine the exercise price,
subject to the adherence to the accounting policies prescribed under the SEBI
guidelines in this regard. Thus, an effective poison pill defence may be achieved
by issuing ESOS at a discount, which would serve to dilute the share value of the
hostile acquirer over the target company. Indian companies need to shift from
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
desperate defensive play to sitting ready on the offensive. It is time we introduce
the poison pill to the Indian business world and adapt it to make it our own.
However, the reason for utilizing the poison pill defence is to protect shareholder
value and interest while stalling entities such as asset strippers that do not have
the best interest of the company in mind or add any value to it.
RECENT AMENDMENT TO TAKEOVER REGULATIONS;
ANTI TAKE OVER AMENDMENTS
Securities and Exchange Board of India (SEBI), in its letter dated July 21, 2009,
sent to all stock exchanges, has prohibited public listed companies from issuing
shares with superior voting rights or dividends. As all existing listed companies
have to remain compliant with the listing agreement, as amended from time to
time, SEBI's move will imply that companies with "differential voting rights" DVR
shares or shares with differential dividends will now be required to bring them at
par with other shares.27 However, no time period for such action has been
provided, and such an amendment is likely to be contentious in the case of
companies that have already issued DVR shares.
The proposed change in the Companies Bill means that companies will no longer
have choice of instruments to suit various investment paradigms of investors.
Generally, investors desire greater financial flexibility and/or management
control. The proposed change in the Companies Bill also denies the controlling
shareholder in a company the ability to attain greater degree of control to ward-
off takeover threats. DVR shares were held to be legitimate anti-takeover tools by
the Company Law Board in its order dated March 12, 2009, when it approved the
validity of special series equity shares carrying nil dividends and 20 voting rights
per share. These shares allowed Mr Karamjit Jaiswal to gain majority control
over Jagatjit Industries Ltd. and successfully abort the takeover of the company
by his relatives.
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
In brief by highlighting dominant points which have come up as enthralling by
recent aforesaid decision of principle company law board, New Delhi., in the case
of Anand Pershad Jaiswal and Ors. v. Jagatjit Industries Limited28, the petitioners
representing 11.5% of the Issued Share Capital of the Company filed a Petition
under Section 397 and 398 of the Companies Act, 1956, aggrieved on account of
certain alleged acts of oppression and mismanagement in the affairs of the
Company (Jagatjit Industries Limited (JIL),
The following relief's were claimed before the board as follows:-
a) Board of Respondent No. 1 stands superseded and appoint an
Administrator to take charge of the management and affair of the
Company and its books, papers, records and documents for ensuring
smooth and proper functioning of the Company.
b) Frame a scheme for management, administration and control of the
affairs of the Company on such terms and conditions.
c) Declare that the allotment of 25,00,000 Equity Shares of the
Respondent No. 1 to the Respondent No. 7 Company, by the Board
Resolution dated 30.4.2004 read with the resolution dated 16.6.2004
passed at the EGM of the Respondent No. 1 company is null and void and
cancel the same;
d) the transfer of shares held by Respondent No. 1 in L.P. Investment to
group companies of Respondent No. 2 to be null and void and restitute the
same investments in the hands of Respondent No. 1.
Hon'ble chairman of the board formed the view that there was no merit in the
challenge to the allotment of shares with differential voting rights on the facts as
also legally and the preferential allotment of the shares made by the Company on
16.5.2004 was legally permissible in view of the provisions of Section 86 of the
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
Companies Act, 1956 as amended by the Companies Amendment Act, 2000,
read with the Companies (Issue of Share Capital with Differential Voting Rights)
Rules, 2001. After the amendment to the Companies Act by the Amendment Act
of 2000 the issue of shares with DVR is permissible under the provisions of the
Companies Act, 1956. With regard to the Articles of Association of the Company
I am of the view that in view of the provisions of the "Capital" clause in the
Memorandum read along with the Articles of Association of the Company the
Respondent No. 1 was authorized to issue shares with DVRs.
In contemplating the facts more critically a settlement was planned between
Jagajit Industries Ltd. and L.P. Jaiswal & sons pvt. Ltd., they were to be
purchased at Rs. 36,50,00,000/- (Rupees Thirty Six corer fifty lakhs) for each.
Further development of the case which was not in favour of appellant the
respondent company buyback the shares, and appellant contested against them
claiming action amount to be against the order passed amounts to oppression
and mismanagement, and preferential allotment of shares and DVR is legally
permissible. However, regulators can argue that DVR shares distort the balance
between rights and corresponding duties for a class of shareholders. DVR
shareholders could oppress the minority or obstruct legitimate participation by
other shareholders.
Having voting power without commensurate economic interest in a company
poses the threat of (a) mismanagement (since the board may be easily
replaced); (b) misuse of voting power as little or no financial loss may be
incurred; and (c) poor corporate governance.29 On the hand the development
Clause 28A is inserted after clause 28 of the Listing Agreement: The company
agrees that it shall not issue shares in any manner which may confer on any
person, superior rights as to voting or dividend vis-à-vis the rights on equity
shares that are already listed SEBI further amended Clause 19 of the Listing
Agreement by inserting a sub-clause (d) after sub-clause (C).30 Accordingly
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
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Clause 19 (d) is inserted after clause 19 (C) of the Listing Agreement:that in case
of a further public offer to be made through the fixed price route, the company
shall notify the stock exchange, at least 48 hours in advance, of the proposed
meeting of its Board of Directors convened for determination of issue price.
Companies Bill means that companies will no longer have choice of instruments
to suit various investment paradigms of investors. Generally, investors desire
greater financial flexibility and/or management control. While in India, the notable
examples of companies that have issued DVR Shares are Tata Motors and
Pantaloon Retail, in the US, DVR shares have been issued by Google, Ford and
Berkshire Hathaway.
DVR shares were held to be legitimate anti-takeover tools by the Company Law
Board in its order dated March 12, 2009, when it approved the validity of special
series equity shares carrying nil dividends and 20 voting rights per share. DVR
shareholders could oppress the minority or obstruct legitimate participation by
other shareholders. Availing voting power without commensurate economic
interest in a company poses the threat of;
(a) Mismanagement (since the board may be easily replaced);
(b) Misuse of voting power as little or no financial loss may be incurred;
(c) Poor corporate governance. While the regulators' effort to balance the
interests of majority and the minority shareholders is commendable, the
rationale for limiting the ability to issue DVR shares by private companies
or closely held public unlisted companies is not clear.31
As regards the current amendment the proposed change in the Companies Bill
also denies the controlling shareholder in a company the ability to attain greater
degree of control to ward-off takeover threats. Other amendments in Companies
Act, 1956 to the effect changes might create factors for combating takeover
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
Do not reproduce without permission
riders and facilitate restructuring the corporate to increase global
competitiveness, by introduction of non voting shares, inter corporate
investments within the limits specified under section 372A to enable it to over
come liquidity, domestic financial institutions and safe guard of new article, are
different strategic modes adopted by amending charter/constitution of Company
as too, preventive measures for defence or other precautionary measures as
maintaining friction of shares as strongest mood of defense.
ANTI-TAKEOVER AMENDMENT AND FUND RAISING ISSUES
THE GOVERNANCE ISSUE
This part deals with the empirical studies carried to critic over the use of
antitakeover amendment and their rationale in governance of public offering. At
the time of their IPO, the effect of staggered boards on hostile bids, the relation
between poison pills and takeover premia, legislatively imposed staggered
boards, and shareholder voting on staggered boards.
According to an empirical study by Robert Daines and Michael lausner, about
40% of IPO companies have staggered boards.32 Another 20% do not have
staggered boards, but only about 10% of the companies have stricter
antitakeover defenses, such as dual-class stock, and none restrict the ability of
boards to adopt a poison pill make it difficult to remove directors between annual
meetings.33 About 30% of the companies permit removal of directors between
annual meetings, thereby basically adopting a shareholder choice regime. Only
about 10% of the companies have stricter antitakeover defenses, such as dual-
class stock, and none restrict the ability of boards to adopt a poison pill.
It is noteworthy that, for a long time, it was widely believed that the governance
structure at the IPO stage reflects the terms that maximize the value of the
company.34 In the 1980s, mainstream academic opinion took it as a given that
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
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governance rules set at the time of an IPO are likely to be efficient and was
distrustful of rule changes after a company had gone public ("mid-stream"
changes).35Academic opinion started to shift in the late 1990s.
The Factors :
The findings that IPO charters regularly include antitakeover provisions
brought to the fore the inconsistency of two cherished academic views: the
efficiency of the IPO market and the inefficiency of antitakeover
provisions. Increased stock ownership by institutional investors arguably
improved the quality of voting decisions. Academics noticed that, although
investors regularly purchase shares of companies with antitakeover
provisions at the IPO stage,36 they often vote against new antitakeover
provisions mid-stream. Thus, Email from antitakeover devices are
correlated to the average number of parties making acquisition bids in a
firm's history. They argue that a target needs less bargaining power when
it can entice a competing bid and use the average number of bidders in a
target's industry is a proxy for competition. They find that antitakeover
defenses are positively correlated with the average number of bidders,
which is inconsistent with their interpretation of the bargaining power
theory. However, as discussed, the extent of potential competition is only
one of several factors that determine the optimal selling strategy and the
average number of bidders in an industry is, at best, a rough proxy for the
degree of competition for a specific target. An empirical research
conducted by Daines and Klausner, try to test the validity, of the
bargaining hypothesis by examining whether the antitakeover devices are
correlated to the average number of parties making acquisition bids in a
firm's history. They argue that a target needs less bargaining power when
it can entice a competing bid and use the average number of bidders in a
target's industry is a proxy for competition. They find that antitakeover
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
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defenses are positively correlated with the average number of bidders,
which is inconsistent with their interpretation of the bargaining power
theory. However, as discussed, the extent of potential competition is only
one of several factors that determine the optimal selling strategy and the
average number of bidders in an industry is, at best, a rough proxy for the
degree of competition for a specific target.37 Structure at the IPO stage
reflects the terms that maximize the value of the company. In the
Antitakeover rules and are set at the time of an IPO are likely to be
efficient and was distrustful of rule changes after accompany had gone
public ("mid-stream" changes).38
Its one of the defense has, improving corporate governance could be a strategy
for outperforming competitors in financial markets throughout world in India under
listing agreement the amendment rule are mentioned which are to be necessarily
followed by the Companies. Rather antitakeover are distinct on that issues.
ANTITAKEOVER AMENDMENTS VIS-À-VIS CORPORATE POLICY
The effects of antitakeover statutes on firm leverage were studied by Garvey and
Hanka,39 in their empirical studies, the analysis was based on a sample of 1,203
firms and covering data for the period 1983 to 1993. It states about the first-
generation antitakeover laws that in Edgar v. MlTE were ruled to be preempted
by the federal 1968 Williams, Act. In 1987, the Supreme Court reversed in
Dynamics v. CTS. ruling that state antitakeover laws are enforceable as long as
they do not prevent compliance with the Williams Act. After all this ruling, a
majority of the states passed new anti takeover statutes between 1987 and 1990.
The second generation of laws with a control sample of firms in states without
such laws. Protected firms substantially reduced their debt ratios compared to
the control group over a period of 4 years. The results arc not int1uenced by
variations in size, industry, or profitability. In their research analyses they found
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
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weak evidence that protected managers undertake fewer major restructuring
programs.40 They also founded that firms eventually covered by antitakeover
legislation used greater leverage in the years preceding the adoption of the
statutes. This is further evidence of the substitution between increased leverage
and protection by the state antitakeover laws. The impact of antitakeover
amendments on the financial performance of the firm, the main object is
benefiting financial attributes before and after the amendment adoption.
Specifically, pre- antitakeover variables based on 3-year averages financial
attributes prior to the antitakeover amendment were compared to the post-
announcement variables in each of the 5 years after the adoption. Four
categories of financial performance were used in the analysis) income (ratio of
operating and net income to total assets). expenses (ratio or operating and
overhead expenses to sales), investment (ratio of R&D and capital expenditures
to sales) and debt (ratio of debt to total assets). Raw and industry-adjusted data
changes were analyzed.41 Overall more specifically analyzed it can be correctly
said that the effect of antitakeover amendments, or shark repellents, on long-
term managerial decision making,42 it can be argued that amendment, do help
raising falling R& D by implementing antitakeover amendments.
ENVIRONMENT BUILDING VIS-A VIS DEFENCE MECHANISM
"To throw your hat in the ring" is for valuation to be a main concern which asks
for the quality defence mechanisms will be helpful in protection hostile takeover
environment. The side regulations and laws also plays a major role in domestic
hostile takeover protection; now quality question that arise before us is under
which two major characteristics first is under the lights of games acquisitions
which is played for valuation and defence mechanism for better value. Perhaps
its does not means that hostile takeover do not create value; it can be said that
there is no provision under the Takeover Regulation code of India for the hostile
takeover control, and question yet prevails in public M&A regime which need to
Swapneshwar Goutam Anti-takeover Amendments:
An overview: as merger management techniques in public M&A deals
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be addressed. Under the code there is no provision to protect hostile acquisition
almost nothing; a principle which attracts prevails under takeover code and its
combination is social, economic and financial mixture under the code. There are
anomalism's in the takeover regulation remains and for sound sophisticated and
quality M&A deals the code requires to resolve all the undesirable cookies, and
what I personal feel is that if all theses hurdle, and clogging; are resolved will
open a ways for sound dealings with takeover which need to be deliberatively
dealt with regards to national security and in providing more sound environment
and which shall also provide for quality public M&A.
CONCLUSION :
Overall analogy can be which drawn from the above discussion that considering
many of the economic and legal issues concerning takeovers, the question
remains: What result? It is often considerably easier to point out problems than it
is to provide effective solutions. Yet, the evidence indicates that Indian
legislatures are doing something very similar providing solutions to ill-defined
problems. The absence of appropriate legislation under Indian corporate laws
can be felt, SEBI takeover code with regard to dynamic framework in providing
strong propos, defensive strategic against the corporate rider. The perceived
problems in the market for corporate charters provide an opportunity for special
interests to impose their preferences on the entire nation with the adoption of
preemptive. Is strongly arguable!
_____________________________
* BA, LLB (Bachelors in Law) Hons.
Swapneshwar Goutam Anti-takeover Amendments:
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An overview: as merger management techniques in public M&A deals
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An overview: as merger management techniques in public M&A deals
[31 Charted Accountancy Practice Journal 553 (2010)]
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37. Khan & Rock, (2003) "Corporate Constitutionalism: Antitakeover Charter
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