TAKE OVER

BY Shirin Sneha.LS Seema.S Soujanya.N Shruthi.S.Holla

Take Over
A Take over is the purchase of one company [i.e the target company] by another company [i.e the acquirer or bidder].

There are basically two types

Friendly Take Over

Hostile Take Over

Hostile Take Over:

An hostile take over allows an acquiring company to take over a target company whose management is unwilling to agree for take over or merger.

Friendly Take Over:

A friendly take over is an acquisition which is approved by the board of management. Here the board makes an offer and informs the companys board of directors.

Hostile Take Over Approaches

Tender offer: acquiring company makes a public offer at a fixed price above the current market price. Creeping Tender offer: purchasing enough stock in the open market, known as a creeping tender offer, to effect a change in management.

Proxy Fight: tries to persuade enough shareholders, usually a

simple majority, to replace the management with a new one which will approve the takeover.

Other Types of Takeover:

Reverse Takeover : Is a Type of a takeover where a Pvt company acquires a public company. This is usually done at the commencement of a large Pvt company, so that the Pvt company can effectively float itself while avoiding floatation cost and time involved in a public offering. Back Flip Takeover : is any type of takeover in which the company turns itself into a subsidiary of the purchased company or the acquired company. Killer Bees: are firms or individuals that are employed by a target company to fend off a takeover bid. These include investment bankers (primary), accountants, attorneys, tax specialists, etc.

Takeover Defenses
Purpose of take over defense
To prevent takeover that would cause an apparent damage to the shareholders interest. To prevent Coercive takeover. To ensure the time and negotiating power required for the

target.

Principal of takeover defense

Principle of Protecting and Enhancing Corporate Value and Shareholders Common Interest: The adoption, implementation and termination of takeover defense measures should be undertaken with the goal of protecting and enhancing corporate values. Principle of Prior Disclosure and Shareholders Will: When Take over measures are adopted, their purpose and terms should be specifically disclosed and such measures should reflect the reasonable will of the shareholders. Principle of Ensuring the Necessity and Reasonableness: Take over defense measures that are adopted in response to a possible takeover threat must be necessary and reasonable in relation to the threat posed.

Type Of Takeover Defense

1. Precautionary Preventive Measures
2. Active Measure

Precautionary Preventive Measures: are designed to

reduce the possibility of a successful hostile takeover. Active Measure: these are employed only after a hostile bid had been attempted.

Precautionary Preventive Measures

Shark- Repellent Golden Parachutes White mail Staggered Board Super majority Poison pills Crown jewel

 Shark-Repellent
Strategies used to keep off hostile takeover.

Golden Parachutes
Special lucrative compensation agreements that the company provides to Top management.

White mail
Utilized by companies in an attempt to undermine a hostile takeover attempt.

 Staggered Board
used to delay effective transfer of control in a takeover.

Super majority
It requires at least 80% of voting shareholders approval of takeover.

Poison pills
Make stock less attractive to the acquirer.

Crown Jewel Defense

Target company sells off its most attractive assets to a friendly third party or spin off the valuable assets in a separate entity.

Active Defense Measures

Greenmail White Knight

White squire
Pac-man Defense Lady Mac-Beth People Mail Jonestown Defense

Standstill agreements
Capital Structure Changes

Greenmail
Is a situation in which a large block of stock is held by an unfriendly company. This forces the target company to purchase the stock at a substantial premium to prevent a takeover. It is also known as Bon Voyage Bonus or a Goodbye Kiss.

White Knight
Also known as Friendly Company may be a corporation or a person that intend to help another firm. It is the company i.e more favorable compared to the Hostile Company[Dark Knight]

Grey Knight
It is an acquiring company that enters a bid for a hostile takeover in addition to the target firm and first bidder, perceived as more favorable than the black knight (unfriendly bidder), but less favorable than the white knight (friendly bidder).

White squire
A White Squire is a firm that consents to purchase a large block of the target companys stock. The White Squire is typically not interested in acquiring management control of the target but either as an investment or representation in board of the target company

Pac-man Defense

Lady Mac-Beth
A corporate take over strategy with which a third party poses as
a white knight to gain trust, but then turns around and joins with unfriendly bidder.

People Mail
It is kind of Black Mail where the top Management threatens to resign En-mass in case the Hostile takeover takes over the company

Jonestown Defense
This is an extreme corporation defense against hostile takeovers. In this strategy, the target firm engages in tactics that might threaten the firms existence to thwart an imposing acquirers bids. This is also known as a suicide pill, and is an extreme version of the poison

pill.

Standstill agreements
A contract that stalls or stops the process of a hostile takeover. The target firm either offers to repurchase the shares held by the hostile bidder, usually at a large premium, or asks the bidder to limit its holdings. This act will stop the current attack and give the company

time to take preventative measures against future takeovers.

Capital Structure Changes

Financial defensive measures

Increase debt with borrowed funds used to repurchase equity.

Increase dividends on remaining shares.

Structure loan covenants to force acceleration of re-payment in the event of takeover. Liquidate securities portfolios and draw down excess cash. Invest continuing cash flows from operations in positive net-

present-value projects or return it to shareholders.

Anti Takeover Amendments

Corporate Charter Amendments Staggered terms of the board of directors Supermajority provisions Fair price provisions Dual capitalization

Staggered terms of the board of directors

It is a type of defense where the terms of the board of directors so that only a few such as one-third of the directors may be elected during any one given year. It requires share holder approval before they can be implemented. Classified directors cannot be removed before their term

expires

Supermajority provisions
These provisions usually require that at least 80% of voting shareholders approve of the takeover, as opposed to a simple 51% majority. Such a requirement can make it nearly impossible for an acquirer to obtain enough votes approving the takeover.

Fair price provisions

It is a modification of corporations' charter that requires the acquirer to pay minority shareholders at least a fair market price for the companys stock. It is usually in terms of companys P/E ratio its a weak takeover defense

Dual capitalization
Restructuring of equity into two classes of stock with different voting rights. E.g.. Ford Motors Berkshire Hathaway

Poison Pill Defense

Flip Over rights Flip in Plan Back End rights plan Voting plan.

Preferred stock plan.

Flip-over
A flip-over allows stockholders to buy the acquirer's shares at a discounted price after the merger. A flip-over allows stockholders to buy the acquirers shares at a discounted price after the merger. The holders of common stock of a company receive one right for each share held, bearing a set expiration date and no voting power. In the event of an unwelcome bid, the rights begin trading separately from the shares.

Flip In
A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount. Management offers shares to investors at a discount if an acquirer merely purchases a certain percentage of the company. The discount is not available to the acquirer, and so it becomes extremely expensive for that acquirer to complete the takeover.

Back-End Plans
Under back-end plan share the holder receive a right dividend which give share holder ability to exchange this right along with the share of stock for cash or senior securities that are equal in value to a specific back-end price stipulated by the issuer's board of directors. The back-end plans are used to try to limit the effectiveness of two tiered offer. In fact, the name back-end refers to the back end of a two-tiered offer.

Voting Plans
This poison pill strategy is designed to dilute the controlling power of the acquirer. Under this plan, the target company issues a dividend of securities, conferring special voting privileges to its stockholders.

Preferred stock plan

It is also called as preferred shares, preference shares or is a special equity security that has properties of both equity and debt instruments and is generally considered a hybrid instrument. Preferred are senior to common stock but subordinate to bonds.

Thank You