Defensive Tactics Against Hostile Takeovers in Mergers and Acquisitions
Hostile takeovers in mergers and acquisitions involve one company acquiring another directly from shareholders without board approval. Tactics include tender offers, proxy fights, poison pills, crown jewels defense, golden parachutes, and Pac-Man defense to deter or resist takeovers.
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M & A Defensive tactics against hostile takeover
What is a Hostile Takeover? A hostile takeover, in mergers and acquisitions (M&A), is the acquisition of a company (called the target company) by the other company (called the acquirer) by going directly to the target company s shareholders (a tender offer) or through a proxy vote. The difference between a hostile and friendly takeover is that in a hostile takeover, the target company s board of directors do not approve of the transaction.
Hostile takeover bid tactics 01.Tender offer to the company's shareholders. A tender offer is a bid to buy a controlling share of the target's stock at a fixed price. The price is usually set above the current market price in order to allow the sellers a premium as added incentive to sell their shares. 02. proxy fight replace board members who are not in favor of the takeover with new board members who would vote for the takeover. This is done by convincing shareholders that a change is management is needed and that the board members who would be appointed by the would-be acquirer are just what the doctor ordered.
Defensive Tactics Target firm managers frequently resist take over attempts Corporate takeovers can sometimes hostile one business acquires control over a public company against the consent of existing management or its board of directors. ( Hostile takeover) Defenses against a Hostile Takeover 01. Poison pill: Making the stocks of the target company less attractive by allowing current shareholders of the target company purchase shares at a discount. It will increase the number of shares the acquirer company needs to obtain.
There are two types of poison pills: i. A flip-in permits shareholders, except for the acquirer, to purchase additional shares at a discount. This provides investors with instantaneous profits. Using this type of poison pill also dilutes shares held by the acquiring company, making the takeover attempt more expensive and more difficult. ii. A flip-over enables stockholders to purchase the acquirer s shares after the merger at a discounted rate. For example, a shareholder may gain the right to buy the stock of its acquirer, in subsequent mergers, at a two-for-one rate.
2.Crown jewels defense: Selling the most valuable parts of the company in the event hostile takeover. It will make the target deter a hostile takeover. of a company less attractive and 3. Golden parachute: An employment contract that guarantees extensive benefits to key management if they were removed from the company. 4. Pac-Man defense: The target company purchasing shares of the acquiring company and attempting a takeover of their own.
5. Greenmail Greenmail is the practice of buying a voting stake in a company with the threat of a hostile takeover to force the target company to buy back the stake at a premium. In the area of mergers and acquisitions, the greenmail payment is made in an attempt to stop the takeover bid. The target company is forced to repurchase the stock at a substantial premium to thwart the takeover. 6. White knight & while square A white squire is an individual or company that buys a large enough stake in the target company to prevent that company from being taken over by a black knight. In other words, a white squire purchases enough shares in a target company to prevent a hostile takeover. White knight vs while square purchases a majority stake in the company while a white squire purchases a minority stake in the company. Therefore, in a white-squire situation, the target company is able to remain independent.
A white knight is a company or an individual that acquires a target company that is close to being taken over by a black knight. A white knight takeover is the preferred option to a hostile takeover by the black knight as white knights make a friendly acquisition preserving the current management team, making better acquisition terms, and maintaining the core business operations. by generally
What is a White Squire? A white squire is an individual or company that buys a large enough stake in the target company to prevent that company from being taken over by a black knight. In other words, a white squire purchases enough shares in a target company to prevent a hostile takeover
Example of a White Squire 1. Company A receives a bid offer from Company B. In finance, Company A would be called the Target Company and Company B would be called the acquirer Company. 2. Company A rejects the offer from Company B 3. Despite the rejection of their offer, Company B proceeds with a tender offer (purchasing shares of Company A at a premium price) to acquire a controlling interest in Company A. By continuing to pursue an acquisition despite getting their offer declined by Company A, Company B would be attempting a hostile takeover of Company A. Company B would be referred to as a black knight. 4. A friendly investor sees the hostile takeover attempt by Company B and decides to step in and help Company A. The friendly investor purchases shares in Company A to prevent them from being acquired by Company B.
Incentives for the White Squire A white squire is used to help the target company prevent a hostile takeover. The target company must incentivize the white squire to stand on its side of the target and not end up selling its shares to the black knight (thus aiding the hostile takeover attempt).
White Squire vs. White Knight A white squire and a white knight are similar in that both are involved in preventing a hostile takeover attempt. However, the differentiating point is that a white knight purchases a majority interest while a white squire purchases a partial interest in the target company. White squires are preferred over white knights. A white knight purchases a majority stake in the company while a white squire purchases a minority stake in the company. Therefore, in a white-squire situation, the target company is able to remain independent.
