Summary Corporate Valuation, Restructuring and M&A's
Hostile takeover: An unsolicited offer made by a potential acquirer that is resisted by the target
firm’s management.
Takes place via:
- Tender offer: Public announcement with a premium over the current market price. Target
management usually tries to “fight” the offer – For example, puts out statements that the
offer is detrimental to the company.
- Proxy Contest: Obtain the voting rights from the shareholders to get voting power. Bidders
try to convince the majority of the target shareholders to vote for them.
A firm can become a takeover target because:
- Low current stock price.
- Divestable business units (Subsidiaries or properties that could be sold off without
significantly impairing cash flow).
- Low managerial entrenchment (Relatively small stock holdings under the control of
incumbent management).
A firm want to engage in defensive tactics to:
- Resist to get a better price.
- Target’s management thinks that the company will perform better on its own.
- Target’s management doesn’t want to lose its authority.
Takeover Defenses:
Can improve firm value by creating an auction for the target or preventing coercive tender offers.
Two general forms of defensive tactics:
- Preventive anti-takeover measures:
- Active anti-takeover measures
1) Poison Pills
2) Poison Put
3) Golden Parachute
4) Anti-Takeover Amendments
5) Takeover Regulation
6) Financial Restructuring
7) Corporate Restructuring
8) Greenmail
9) Pac Man Defense
10) White Knight / White Squire
Poison Pills: Creation of securities carrying special rights exercisable by a trigger event, which make it
more costly to acquire control of the target firm.
F.i. shareholders receive heavily discounted additional shares which dilutes the bidders share.
Poison Put: Issuance of a bond with the option of obtaining repayment if a hostile takeover occurs
before the bond’s maturity date.
Places a large cash demand on the new owner.
Golden Parachute: Compensation package for executives if they lose their jobs due to a change-of-
control clause.
Hostile takeover: An unsolicited offer made by a potential acquirer that is resisted by the target
firm’s management.
Takes place via:
- Tender offer: Public announcement with a premium over the current market price. Target
management usually tries to “fight” the offer – For example, puts out statements that the
offer is detrimental to the company.
- Proxy Contest: Obtain the voting rights from the shareholders to get voting power. Bidders
try to convince the majority of the target shareholders to vote for them.
A firm can become a takeover target because:
- Low current stock price.
- Divestable business units (Subsidiaries or properties that could be sold off without
significantly impairing cash flow).
- Low managerial entrenchment (Relatively small stock holdings under the control of
incumbent management).
A firm want to engage in defensive tactics to:
- Resist to get a better price.
- Target’s management thinks that the company will perform better on its own.
- Target’s management doesn’t want to lose its authority.
Takeover Defenses:
Can improve firm value by creating an auction for the target or preventing coercive tender offers.
Two general forms of defensive tactics:
- Preventive anti-takeover measures:
- Active anti-takeover measures
1) Poison Pills
2) Poison Put
3) Golden Parachute
4) Anti-Takeover Amendments
5) Takeover Regulation
6) Financial Restructuring
7) Corporate Restructuring
8) Greenmail
9) Pac Man Defense
10) White Knight / White Squire
Poison Pills: Creation of securities carrying special rights exercisable by a trigger event, which make it
more costly to acquire control of the target firm.
F.i. shareholders receive heavily discounted additional shares which dilutes the bidders share.
Poison Put: Issuance of a bond with the option of obtaining repayment if a hostile takeover occurs
before the bond’s maturity date.
Places a large cash demand on the new owner.
Golden Parachute: Compensation package for executives if they lose their jobs due to a change-of-
control clause.
