Takeover Tactics and Defenses
VMA; S3
Prof. Jijo Lukose P.J.; IIM Kozhikode
Topics
VMA S3
Corporate
governance;
Common
takeover tactics;
and
Common
takeover defenses.
2
Factors Affecting Corporate Governance
VMA S3
Internal to Firm
Board of Directors
Management
Internal Controls
Incentive Systems
Corporate Culture &
Values
Takeover Defenses
Bond Covenants
External to Firm
External to Firm
External to Firm
External to Firm
Legislation
Regulators:
SEBI, SEC
Court, RBI
Competition Commission
Institutional Activism
Market for Corporate
Control
3
Alternative Models of Corporate Control
VMA S3
Market model applies when:
Capital markets are liquid
Equity ownership is widely
dispersed
Board members are largely
independent
Ownership & control are
separate
Financial disclosure is high
Shareholder focus more on
short-term gains
Prevalent In U.S. and U.K.
Control model applies when:
Capital markets are illiquid
Ownership is heavily
concentrated
Board members are largely
“insiders”
Ownership & control overlap
Financial disclosure limited
Shareholder focus more on
long-term gains
Prevalent in Europe, Asia, & Latin
America
4
Alternative Takeover Tactics
VMA S3
Friendly deals (Target board supports bid)
Hostile deals (Target board contests bid). Rare due to
Target board flexibility in setting up defenses
Impact on bid premiums
Impact on postclosing integration
The threat of hostile bids often moves target boards toward
negotiated settlements.
5
Hostile Takeover Tactics
VMA S3
Limiting the target’s actions
through a “bear hug”
Proxy contests in support of a
takeover
Purchasing target stock in the
open market
Circumventing the target’s
board through a tender offer
Litigation
Using multiple tactics
concurrently
6
Bidding
Bid high. A high initial bid is known in M&A parlance
as a “bear hug”. This strategy deters competitors and
pressures the target’s directors to accept the offer.
Bid low. This has the advantage of saving the gains
