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` Friendly Approach: negotiated settlements often

involving bargaining
` Aggressive/ Hostile Approach:
Unwanted offer
Strongly opposed by target firm
May try bear hug first, if not successful then try,
` Proxy Fight

` Open Market Operations

` Tender offer

` Street sweeps: search for owners of large blocks of

target stock (like institutional investors) and buy from
them
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` Preventive: before bid happens

Poison Pill
Poison put
People pill
Voting plans
Corporate charter amendments
` Active/ reactive: after bid happens:
Greenmail
Standstill agreements
White knights
White square
Recapitalization
ESOPs
Litigation
Pac man defense
Just say no
Crown kewels
Share repurchase
Restructuring
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` Poison Pill:
Provides rights to issue shares to existing
shareholders (usually at a steep discount), on a
triggering event, to make the target less attractive
Point of activating the rights and exercising them,
is defined in the charter
Normally done to block 100% acquisition
Board may have authority to redeem the pills at a
nominal price
May include a ³dead-hand´ provision: only members
who initiated the pill, can redeem the provision
Of two types:
` Flip-in Plan:
issue rights to subscribe to target firm¶s shares,
at a discount
Effect: to increase equity base of the target,
makes acquisition more expensive for acquirer
` Flip-over Plan:
issue rights to subscribe to acquirer¶s shares at a
heavy discount
Effect: makes issue expensive for acquirer
` May have combination of the above two
` Back-end plans: a type of poison pill, which issues rights
to be exchanged for cash/ senior debt, at a specific price
` Voting Plans: issue dividend of preferred stock with
super voting rights
` Poison put: issue bonds with a put option exercisable in
the event of a hostile takeover: leads to large cash
demand, hence making acquisition less attractive
` People pill: when entire management threatens to
resign, in the event of hostile takeover
Golden Parachute:
` Offers attractive lump-sum payment to top
management in the event of change in control,
within a specified time frame
` Makes prospective acquisition expensive
` Silver parachutes: cover more number of
employees
` Tin parachutes: cover practically all employees,
with modest payments
Negotiated Contracts: eg. for rent, lease etc.: rescind
the contract or increase costs in case of an unfriendly
takeover
` Corporate Charter Amendments:
also called ³shark repellents´
includes provisions in Articles and Memorandum of
Association, to obstruct a takeover attempt
Strengthens Board¶s ability to retain control
Could be like:
` Staggered/ classified Boards: of different classes, re-elect by
rotation; limit Board size as well
` Supermajority provisions: some actions like a takeover offer
would require approval of larger percentage of votes; may
contain escape clauses called board-out clauses
` Corporate Charter Amendments (contd.):
Fair Price Amendment: may require the bidder to pay a fair
price, as defined; thus acts as disincentive for the bidder
Dual capitalization: creates a new class of securities with
special voting rights, sometimes in exchange for old
shares; normally carry lesser dividends and a premium, so
these are not taken up by outside shareholders while the
management retains it
Reincorporation in a state with more favorable takeover
laws
Anti greenmail amendments: restricts firm¶s ability to
repurchase a raider¶s shares at premium, acts as a
disincentive
  |



` Greenmail:
Offer to buy back shares of prospective bidder
At a substantial premium
In return for an agreement that he will not initiate a bid for control
of the company
` Standstill agreement:
Potential bidder agrees not to increase his holdings/ or beyond a
certain percentage, in the target company
In return for standstill fees/ compensation
Mostly accompanied with greenmail
May also give target firm, right of first refusal in case acquirer
decides to sell, to prevent other bidders
` White Knight:
May sell to a more acceptable/ friendly suitor
Offer must be at more favorable terms to justify the same to
shareholders
Challenge is to find such a suitor
Target to accept better of the two offers, to avoid violation
of its duties to shareholders
` White Square: purchase of block of shares by
another investor, hence only financial participation is
given; independence of target firm is preserved
` ESOPs: places part of ownership with employees,
who are assumed to be more sympathetic to
management objectives
` Litigation:
On various grounds
Get a court injunction
Target firm buys more time for defensive strategies
` Pac- Man Defense:
Make counter offer for the bidder
Very aggressive strategy
Target must have financial resources to back it up
Both may end up being destroyed
` ³Just Say No´ Defense
` Crown Jewels: sell off the profitable division/
tangible/ intangible asset, to make itself less
attractive to bidders
` Share Repurchases:
Reduces available floating stock
Increases management stake, without additional investment
However, may have difficulty financing the buyback
` Restructuring:
Going private
Make an acquisition to drain off excess cash, or increase its debt
and reduce borrowing capacity, reduce its financial comfort: thus
become less attractive
Go in for liquidation if that is a more lucrative financial option
` Create antitrust incompatibility
` Make other acquisitions: to reduce cash, increase size, acquire
assets not desired by the bidder
º   |

  
` Objective: is not prevention of takeovers or to discourage this
activity, but to ensure fairness, transparency and protection of
minority interests
` Salient features:
Acquisition beyond 5%, inform SE and target firm
When holding is between 15% and 55%, any acquisition of
beyond 5% to be accompanied with a public offer of at least 20%
Likewise if holding is between 55% and 75%, any further
acquisition is to be accompanied with a public offer of at least
20%
Requirements of Public offer price and disclosures are to be met
Recently, the second clause limit above has been removed