ANTITAKEOVER STRATEGIES PROACTIVE (PREOFFER) MEASURES Proactive antitakeover measures, sometimes called shark repellents, may reduce the

value of stock. Shark repellent is a repellent applied by deep sea divers to prevent sharks from attacking them the target company makes special amendments to its bylaws that become active only when a takeover attempt is announced .Objective of the special amendments is to make the takeover less attractive to the acquirer. In such a case, the acquirer is termed as the shark and the proposed amendments are repellents that prevent the shark from attacking. The most popular takeover defense mechanisms involve the adoption of by law and charter amendments intended to make the transfer of corporate control very difficult. These strategies are also known as porcupine amendments and are important components of takeover defense action. 1. STAGGERED/CLASSIFIED BOARD PROVISIONS divide a firms board of directors into sections so that only one section stands for election each year. Corporate charter amendments are made that make replacement of board of directors difficult. It is a defense wherein a certain percent of the companys director are replaced every year and not the entire board being replaced annually. This makes it difficult for the acquirer to seize control over the target, as the hostile bidder has to win more than one proxy fight at successive shareholder meetings in order to exercise control over the targets directors in rotation. This concept, which is prevalent in several U.S. companies, ensures that only a third of the board can change each year. Hence, it would not be possible for shareholders to replace the board, except through a gradual process of changing a third of the board each year. In a staggered board, its members are not all elected at one time. Their appointments are staggered over time. After the initial period, for example, a nine member board will have only three members of the board elected for a 3-year term, annually. In the first year, the first class of three board members would be elected, the second year the next class of three members, the third year the final class of three members, and in the fourth year the process would begin again with the board seats from the first class up for election. This provision ensures that new majority shareholders would have to wait two cycles (or 2 years) before gaining control of the board. Sections 255 and 256 of the Companies Act, 1956 provide for an element of staggering of the board, in as much as they provide that at least two-thirds of the board should consist of directors who retire by rotation. The remaining one-third is appointed in the manner permitted by the articles of association. Despite some shades of similarity between the Indian and U.S. position, there is one stark difference. And that is that Indian directors (whether appointed by general meeting through rotation or in the manner permitted by the articles) are all liable to be removed by the shareholders through an ordinary resolution (simple majority) at a shareholders meeting (Section 284, Companies Act, 1956). This is a significant power in the hands of Indian shareholders that makes staggered boards an entirely ineffective defense, if at all, in the context of takeovers. Clauses involving shareholders are not the only escape routes available to targeted

companies. It's important to note, however, that such a plan holds no direct shareholder benefit. 2. SUPERMAJORITY merger approval provisions require approval by an abnormally large share of shareholder votes to enable mergers or other transactions that involve substantial stockholders. Certain corporate amendments or decisions require a large majority (67% or 80%) of votes to approve a takeover. For example, let's say the TSJ Sports Conglomerate is faced with a merger proposal from ABC Sports Inc. If the company has a supermajority amendment in it's charter, then before it is able to merge (even if management fully endorses the move) the company will need to hold a shareholder vote on the issue and gain a majority equal to, or greater than, the amendment specifies (anywhere from 67-90%). A supermajority or a qualified majority is a requirement for a proposal to gain a specified level or type of support which exceeds a simple majority (over 50%). Supermajority voting amendments require shareholder approval by at least two-thirds vote and sometimes as much as 90 percent of the votes of the outstanding stock for transactions involving change in control. In most supermajority voting amendments, the board has discretion in imposing the supermajority rule. This way the board has flexibility to impose the supermajority provision in the case of an unfriendly takeover and to not enforce it in the case of a friendly acquirer. Thus, the supermajority rule may not apply in the case of a merger approved by the board. In other cases, a supermajority vote may be necessary to cancel the supermajority vote for an acquisition. In addition, some supermajority voting amendments have been extended to include supermajority voting to amend the corporations charter. In India the passage of a special resolution by shareholders of an Indian company requires a 75% supermajority vote (and can therefore be blocked by a shareholder holding more than 25% of the companys equity). Similarly, holders of 10% or more of an Indian companys equity can make statutory oppression of the minority claims. 3. FAIR MERGER PRICE provisions specify the minimum share prices in mergers that involve major stockholders. Preset metric, such as P/E ratio, used to determine the fair price of the company in case of takeover. A fair price amendment requires that an acquirer pay a fair price for all of the corporations outstanding stock. A fair price may be determined as a historical multiple of the companys earnings or even a predetermined multiple of earnings or book value of the target company. Additionally, in the case of a two-tier tender offer, the fair price amendment forces the acquirer to pay all target shareholders the same amount. This maintains a level of equality for those target stockholders who tender their shares in a second tier with those target shareholders who tender their stock in a first tier. Consequently, the acquirer cannot offer more to the first group, thereby putting undue pressure on the target stockholders who do not want to hastily tender their shares. In India, a fair price amendment prohibits two-tier bids,
where the first 80 percent of the shares tendered receive one price, whereas the last 20 percent receive a lower price for their stock.

4. LOCKUP PROVISIONS are used to prevent the circumvention of the firms antitakeover provisions. The most popular provision requires supermajority approval to repeal other antitakeover amendments. Another example is a provision limiting the number of directors, which prevents a new majority shareholder from enlarging the size of the board and diluting the current directors voting power by filling the board with new directors. Lock up provision represents a strategy wherein an option is granted by the seller to the buyer to purchase a target companys stock as a prelude to a takeover. Acquirer requires a lock up agreement before making a bid as it facilitates negotiation progress - as a result of this arrangement, the major or controlling shareholder gets effectively "locked-up" and is not free to sell the stocks to a party other than the potential buyer. An undesired third party is deterred from acquiring a major portion of the target company due to the very high value of the lockup option. Lock-ups can either be:Soft - one that permits the shareholder to terminate the agreement if a better offer comes along, Hard - one that is unconditional and cannot be terminated, Asset lock-up/Crown Jewel Lock up is where the target firm grants an option for the acquisition of an asset. Lock-up provision - is a term used in corporate finance which refers to the option granted by a seller to a buyer to purchase a target companys stock as a prelude to a takeover. The major or controlling shareholder is then effectively "locked-up" and is not free to sell the stocks to a party other than the designated party (potential buyer). Typically, a lockup agreement is required by an acquirer before making a bid and facilitates negotiation progress. In a stock lock-up, the bidder is able to either purchase 1) authorized but unissued shares of the major or controlling stockholder, or 2) the shares of one or more large stockholders. An asset lock-up occurs when the target firm grants an option for the acquisition of an asset. This is also known as a crown jewel lock-up. In many cases, lock-up provisions may impede free competition, and thereby restrict the market from acting naturally by preventing rival bids for the target company. Courts will approve lockups if they find that the lockup was used to encourage a bidder to make an offer and not as a device to end an auction or bidding process. Asset lock-ups, however, discourage other bidders, and are generally discouraged by the courts. 5. INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK is a common antitakeover measure. A corporation may also use the newly issued shares to make acquisition of its own. 6. GOLDEN PARACHUTES are contractual agreements between top managers and the corporation that guarantee the managers a minimum salary and bonus in the event of a takeover. These refer to lucrative termination arrangements for executives in event of takeover. Parachutes are employee severance agreements that are triggered when a change in control takes place. The purpose is to provide the corporations managers and employees with peace of mind during acquisition discussions and the transition. It helps the corporation retain key employees who may feel threatened by a potential acquisition. Parachutes also help the manager to address personal

concerns while acting in the best interest of the stockholder. The current board and management team establish the parachutes that become effective when a potential acquirer exceeds a specified percentage of ownership in the company. Parachutes may be put in place without the approval of stockholders and may be rescinded in the case of a friendly takeover. Parachutes come in three varieties. First, the golden parachute is designed for the corporations most senior management team, say, the top 10 to 30 managers. Under this type of plan, a substantial lump-sum payment (maybe multiples of the managers annual salary and bonus) is paid to a manager who is terminated following an acquisition. A silver parachute widens the protection to a much larger number of employees and may include middle managers. The terms of a silver parachute often cover severance equal to 6 months or 1 year of salary. Finally, a tin parachute may be implemented that covers an even wider circle of employees or even all employees. This program provides limited severance pay and may be structured as severance pay equal to 1 or 2 weeks of pay for every year of service. 8. POISON PILLS are stock rights plans accepted by a firms board of directors. They do not require the shareholders approval. The rights are issued to stockholders and remain inactive until triggered by a tender offer. The exercised rights are used in one of two plans: flip-over plans or flip-in plans. Flip-over plans use options to purchase stock in the event of takeover. A typical transaction sets the price of the preferred stock at $50 and makes it convertible to $100 of equity. Flip-in plans enable the issuing firm to repurchase stock rights from its shareholders at a large premium, usually 100%. The company has to finance such with a new debt and the acquirer is now pursuing a target with higher leverage and much less attractive. Poison Pill as a right to buy shares in the firm at a bargain price. The right is granted to the target firms shareholders, contingent on another firm acquiring some degree of control. This right dilutes the stock so much that the bidding firm loses money on its shares. Wealth is transferred from the bidder to the target shareholders. A strategy adopted to increase the likelihood of negative results over positive ones for the company attempting a takeover. Derived from warfare terminology - Were pills laced with poison that spies used to carry and would consume when they would get discovered or captured, in order to eliminate the possibility of being interrogated for the enemy's gain. Represents an anti-takeover defense wherein the current management team of the target company threatens to quit en masse in the event of a successful hostile takeover. Effectiveness depends on the circumstances of the takeover - If the management team is efficient and quits en masse, the acquirer would be left without experienced leadership following a takeover. On the other hand, if the current leadership is inefficient he will get fired after the takeover making the poison pill becomes ineffective A poison pill is a shareholder rights plan whereby a company distributes special stock warrants to its shareholders that entitle them to purchase shares of the company at a substantial discount in the event of a hostile takeover attempt, to the exclusion of the raider. The purpose of this defence is to substantially dilute the shareholding of the company to such an extent as to make the acquisition prohibitively expensive to the hostile acquirer. Although the Takeover Code does not proscribe the issue of such stock warrants, the SEBI (Disclosure and Investor Protection)

Guidelines, 2000 (the DIP Guidelines), specifically Chapter 13, impose several restrictions on the issuance of warrants. First of all, issue of warrants at a discount is not possible at the warrants have to be priced at a minimum price determined in accordance with the DIP Guidelines with reference to the market price of the shares (paragraph 13.1.2). Secondly, such warrants can be outstanding only for a period of 18 months after which they would automatically lapse (unless exercised) (paragraph 13.2). Companies will find it difficult to return to shareholders every 18 months to seek a renewal of the shareholder rights plan. For these reasons, the poison pill does not work efficiently as a defence in the Indian context. . A dead-hand provision allows only the members of the board who initiated the poison pill to modify or redeem the provision. Once again, the dead-hand provision prevents an unfriendly acquirer from seizing control of the board and removing the pill. A back-end plan is a different variety of a poison pill. A back-end plan provides the target shareholders with rights. At the option of the targets stockholder, a right and a share of the targets stock can be exchanged for cash or senior debt at a specific price set by the targets board. This effectively communicates the boards asking price for the company. POISON PUT is a strategy wherein the bondholders and stockholders are assigned a right whereby they can demand redemption of stock before maturity, at a value in excess of the par value or allows the shareholders to purchase the companys shares at a very attractive fixed price in case of restructuring of the company, excess distribution of dividend. In this case target may agree to have the loan agreement or other material contracts which permits the lender to call the loan or the other contracting party to cancel the contracts in the event of change of control. This may create problems when the target is restoring to white knight who is not acceptable to the lender or those other contracting parties.A poison put takes the form of a bond with a put option attached. The put option only becomes effective if an unfriendly acquisition takes place. The bonds are put (or sold back) to the acquiring company, thus putting an additional drain on the cash requirements of closing the deal. The term originated from the world of espionage, where spies were instructed to swallow a poisonous pill rather than risk capture. The phrase was first used in a business setting by Martin Lipton, of Wachtell, Lipton, Rosen, and Katz. Lipton invented the poison pill defense during a takeover battle in Texas back in 1982. At the time, T. Boone Pickens was trying to acquire General American Oil. Lipton advised the company's Board of Directors to flood the market with new shares of stock. By diluting the stock purchased by Pickens, the company could regain control of its destiny.The strategy was eventually ruled as a legal defense mechanism by the Delaware Supreme Court in 1985, and was legally recognized for the first time in the case of Moran v. Household International. REACTIVE (POSTOFFER) MEASURES 1. A STANDSTILL AGREEMENT is a voluntary agreement between corporation and a significant stockholder that limits the ownership of voting shares in the company to a maximum percentage less than a controlling interest for a specified period of time. Such an agreement is confidential. Substantial shareholders agree through negotiated contracts not to participate in any

takeover attempts. It is a voluntary contract between the target and the raider or any shareholder who have accumulated larger stake (in the target) whereby the later agrees not to make further investments in the targets or/and vote with the target's board during specified period, say three to five years for some compensation. A standstill agreement is an understanding between a company and a large block of stockholders. It is voluntary on the part of the potential acquirer and provides a specified period of time that the acquirer will not purchase any more shares of the target company. A standstill agreement often is enacted with a greenmail payment. HewlettPackard voiced concerns about Oracle attempting a hostile takeover after it hired former HP CEO Mark Hurd as co-president, Oracle's lead counsel told a judge on Monday. HP sued Hurd shortly after he went to Oracle in September 2010, and the two companies quickly tried to settle the dispute. One of HP's core demands was a "standstill" agreement blocking takeover bids by Oracle for a period of time, said Dorian Daley, Oracle's senior vice president, general counsel and secretary, a key player in the negotiations with HP. But Daley dismissed HP's worries."I said, 'Are you kidding me?'" Daley said during questioning by Oracle in front of Judge James Kleinberg in Santa Clara County Superior Court in San Jose, California. "It was a very surprising ask, from my perspective," because HP is three times as big as Oracle, Daley said. 2. Standstills are frequently followed by TARGETED SHARE REPURCHASES/SHARE BUYBACK. At the end of the time specified in a standstill agreement, the firm often buys the large block of shares held by the major stockholder at a substantial premium over the open market price. repurchase at a premium of shares held by potential hostile bidder . HSBC Securities & Capital Markets (India) Pvt Ltd ("Manager to the Buyback") on behalf of Hindustan Unilever Ltd ("Target Company") has informed this Public Advertisement regarding completion of Buy-back offer to the equity Shareholders / Beneficial Owners of equity shares of the Target Company, One of the first multinationals (MNCs) to offer buy back option was Royal Philips Electronics of Netherlands (Philips), the Dutch parent of Philips India Limited in the year 2000. The open offer was made at Rs.105, a premium of 46% over the then prevailing stock market price. Cadbury India, Otis Elevators, Carrier Aircon etc. soon followed suit. Fund managers which held these companies' stocks felt that allowing buyback of shares was one of most favorable developments in the Indian stock markets. 3.This premium on repurchase is commonly known as GREENMAIL and is viewed as an incentive to prevent the major stockholder from initiating a takeover bid for the firm. Greenmail is a practice of purchasing enough shares of another publicly traded company that poses a threat of takeover for the target company. Threat of a takeover then forces the target firm to buy those shares at a premium, in order to avoid/suspend the takeover. As discussed above, greenmail is a practice of paying off anyone who acquires a large block of the companys stock and raises threats of acquisition. To alleviate those threats, a company can simply pay that individual a premium over what he or she paid when accumulating the companys stock. It is a technique that can be used in a hostile takeover situation. However, paying greenmail may be counterproductive with less than desired effects, and it could result in other potential acquirers stepping in to receive their greenmail as well. It is a technique used to thwart a hostile takeover

in which the target firm purchases back its own stock from an unfriendly bidder, usually at a price well above market value. In the event of a hostile takeover attempt, a target company can use a top-up to increase time for enhancing takeover defenses. Stock repurchases are often used as a tax-efficient method to put cash into shareholders' hands, rather than pay dividends. Sometimes, companies do this when they feel that their stock is undervalued on the open market. Other times, companies do this to provide a "bonus" to incentive compensation plans for employees. Rather than receive cash, recipients receive an asset that might appreciate in value faster than cash saved in a bank account. Another motive for stock repurchase is to protect the company against a takeover threat. Greenmail or greenmailing is the practice of purchasing enough shares in a firm to threaten a takeover, thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover. The term is derived from blackmail as commentators and journalists saw the practice of said corporate raiders as attempts by well-financed individuals to blackmail a company into handing over money by using the threat of a takeover. PeopleSoft fought Oracles hostile takeover bid for a year and a half, until Oracle finally won control in December 2004. Oracle initially offered $16 a share for PeopleSoft in June 2003, which PeopleSoft managers rejected. The result was that Oracle increased the price it offered as it met intense resistance. Even when PeopleSoft shareholders voted to accept an Oracle offer of $24 a share, which was a healthy premium over PeopleSofts share price at the time, PeopleSofts managers continued to resist. This led to PeopleSoft shareholders ending up with a price of $26.50, several billion dollars more than they would have received from the initial offer Whitemail is another strategy wherein the target company issues large number of shares to a friendly party at a price quite below the market price. It forces the acquiring company to purchase these shares from the party to complete the takeover. Strategy discourages takeover by making the deal more difficult and expensive as the corporate raider is required to purchase shares from a party that is friendly to the target company. Once takeover is averted the target company may either buy back the issued shares or leave them floating in the market. 3. A common reactive strategy is known as the PAC-MAN DEFENSE/COUNTER TENDER OFFER, in which the target company initiates a hostile tender offer of its own for the acquiring company. The target becomes the acquirer. PAC-MAN DEFENSE is commonly used to prevent a hostile takeover. The name refers to the star of a video game Pac-Man, in which the hero is at first chased around a maze of dots by 4 ghosts. However, after eating a "Power Pellet" , he is able to chase and devour the ghosts. Here the target company counters the takeover bid by trying to acquire the bidders company i.e. the target company makes a counter offer to purchase the business of the acquiring company. Diverts the acquirer attention as the acquirer gets busy in preventing the takeover of their own company. A Pac-Man defense is an extremely aggressive (and rarely used) defense where the target company counteroffers and launches its own acquisition attempt on the potential acquirer. For example, company A launches an unfriendly takeover attempt of company T. To thwart these advances, company T launches its own acquisition attempt of company A. This technique is also effective when the original acquirer is

smaller than the original target company, thus providing the original target the opportunity to finance a potential deal. This defense is extremely risky. It mitigates the antitrust defenses that could be offered by the original target company. The Pac-Man defense essentially suggests that the target companys board and management are in favor of the acquisition, but that they disagree about which company should be in control. This is usually the scenario if the raider company is smaller than the target company and the target company has a substantial cash flow or liquid able asset. High quality global journalism requires investment. As a takeover tactic, it was first pioneered in the US by Martin Marietta, a defence contractor, which in 1982 countered a hostile bid from Bendix, the engineering company, with a bid of its own. The Pac-Man defence is one of the riskiest takeover tactics that an investment banker can use but Warner Music is launching a bid for smaller rival EMI just weeks after EMI launched a bid for Warner Music. 4. The target company searches for a WHITE KNIGHT to bid for the firm against the original hostile tender offer. The terms usually include a higher price than the original tender offer and more options for the target firms management. Is a situation where a target faces a hostile takeover attempt from a company and is struggling to avoid the same.At the moment another company makes a friendly takeover offer to the target company in order to help the target successfully avoid the hostile takeover bid. Friendly takeover offer is to save the target from the hostile attempt and the company making a friendly offer called a white knight. Losses in shareholder wealth due to overbidding. This is one defence that seems entirely permissible within the contours of the Takeover Code, as the Code permits competitive bids in the wake of a takeover offer. It is always open to the target company or its promoters to bring in a white knight, and this route was successfully utilized by the promoters of the GESCO real estate company when there was a hostile bid on it by the Dalmia group. The white knight was the Mahindra group that was recruited by the promoters to keep the Dalmia group at bay. It seems that among the traditional takeover defences, the white knight is one that is available without doubt to a target company or its promoters in the event of a hostile acquisition of an Indian company. In a white knight defense, the target company seeks a friendly acquirer for the business. The target might prefer another acquirer because it believes there is greater compatibility between the two firms. Another bidder might be sought because that bidder promises not to break up the target or to dismiss employees en masse. eg, SIL BAJORIA CASE. Severstal in case of Arcelor-Mittal was White Knight, Reliance tried to acquire Raasi Cements, Raasi called Indian Cements as White Knight, but Indian cements became predator. White Squire is similar to a white knight. Only difference is that a white squire exercises a significant minority stake, as opposed to a majority stake. Does not have any intention of getting involved in the takeover battle, but serves as a figurehead in defense of a hostile takeover due to

the special voting rights it holds for its equity stake holds in the company. Friendly companies acquire a substantial block of shares, but not of controlling interest. This can lead to white knight situation. Target firm may eventually have to allow the white squire purchase of additional shares at a favorable price. A white squire is similar to a white knight, but the white squire does not take control of the target firm. Instead, the target sells a block of stock to a white squire who is considered friendly and who will vote her or his shares with the targets management. Other stipulations may be imposed, such as requiring the white squire to vote for management, a standstill agreement that the white squire cannot acquire more of the targets shares for a specified period of time, and a restriction on the sale of that block of stock. The restriction on the sale of that block of stock usually includes that the target company has the right of first refusal. The white squire may receive a discount on the shares, a seat on the targets board, and extraordinary dividends. (1986)Carter Hawley Hale Stores Inc. has shown again that an antitakeover ploy dubbed the ''white squire'' defense holds its own risks for companies using the manuever. Carter Hawley, one of the nation's largest retailers, did that in 1984 when it sold General Cinema Corp. a 38.6 percent stake to defuse an unwelcome takeover bid by Limited Inc. CBS Inc., Walt Disney Co. and Warner Communications Inc. also have used white squires in recent years to ward off unwanted bidders. When Carter Hawley sold the block of shares to General Cinema, for example, the companies also signed a ''standstill agreement'' that restricted General Cinema's ability to raise its holdings in Carter Hawley, sell its existing stake or vote its stake against management. But General Cinema was freed from most of those restrictions late last month when Limited, in a joint effort with Edward J. DeBartolo Corp., made a second attempt to acquire Carter Hawley. Suddenly, General Cinema was the central figure in the battle over Carter Hawley's future. General Cinema, a Newton, Mass.-based bottler and theater operator, was in position to either side with Limited-DeBartolo or attempt to gain control of Carter Hawley itself. In the end, General Cinema helped Carter Hawley again thwart Limited by striking a new deal whereby Carter Hawley would spin off its specialty retail stores to its stockholders and keep its department stores. General Cinema received the right to exchange its Carter Hawley stock for 44 percent voting power and an overall 52 percent equity ownership in the newly created company. General Cinema also purchased additional Carter Hawley common stock that will allow it to retain about 18 percent of the Carter Hawley department store business.Thus, General Cinema's initial white-squire stake gave it the means to help Carter Hawley fend off Limited, but also to negotiate for control of Carter Hawley's specialty retailing operation. Even if a white squire does not pose a threat to a company's independence, it still can be a major influence on management.CBS, for instance, invited Loews Corp. to amass up to 25 percent of the entertainment concern last year to help CBS defuse a takeover attempt by broadcasting executive Ted Turner. 5. If a target company can identify assets that are attractive to a bidding firm, it may spin off these assets to its stockholders or friendly third party or it may spins off its valuable assets in a separate entity. This makes the target company less attractive for the company planning a takeover, which then loses interest and defers the takeover bid.This measure is often called the CROWN JEWEL strategy. CROWN JEWEL represents the most valuable unit or department of a company. They are categorized as crown jewels based on their profitability, value of assets

owned, and future growth prospects. A company may also consider selling its most valuable line ofbusiness or division. This line of business or division is referred to as the crown jewels. Once this business has been divested, the proceeds can be used to repurchase stock or to pay an extraordinary dividend. Additionally, once the crown jewels have been divested, the hostile acquirer may withdraw its bid. However, the practice in India is not so flexible. The Companies Act, 1956 has laid down certain restrictions on the power of the Board. Vide Section 293(1); the Board cannot sell the whole or substantially the whole of its undertakings without obtaining the permission of the company in a general meeting. However, there are no restrictions of the sale of a single immovable property, which does not form an undertaking. Hence, primarily there are no restrictions on the power of the Board to deal with the properties of the company, unless they are action against the interests of the company. The SEBI (Substantial Acquisitions and Takeover) Regulations, 1997 vide regulation 23 prescribes general obligations for the Board of Directors of the target company. Under the said regulation, it will be difficult for any target company to sell, transfer, renumber or otherwise depose off or enter into an agreement to sell, transfer, and encumbrance or for disposal of assets once the predator has made a public announcement. Thus, the above defense can only be used before the predator/bidder makes the public announcement of its intention to takeover the target company. Similarly, Clause 40 B (12) of the Listing Agreement prohibits a company from selling its any assets of a substantial amount without obtaining the approval of the company in a general meeting. The target company may also take up huge loans that could become due on takeover. Alternatively, the target company may issue JUNK BONDS to pay massive dividends to the existing shareholders that makes the company saddled with high interest burden. Apples Quiet Deal for AuthenTec Apple agreed to buy AuthenTec, the fingerprint sensor technology company, last week for $356 million in cash, or $8 a share. AuthenTec is a publicly traded company on the Nasdaq, and such announcements are typically accompanied by a news release as well as an analyst call with the buyer and the target. Why is Apple buying AuthenTec? AuthenTec cannot comment on Apples intentions. What will happen to AuthenTecs existing businesses? Apple will implement its plans for AuthenTecs businesses after the transaction closes. What will happen to AuthenTecs employees? AuthenTec cannot speak to Apples intentions. In any event, we do not expect any public comment on future plans with respect to employees. In connection with the acquisition, Apple has entered into what appears to be a crown jewel lock-up with respect to AuthenTecs assets. A crown jewel lock-up is a 80s style mechanism intended to prevent a third party from trumping a takeover offer.

The original buyer will get an option or other right to purchase crucial assets of the target, sometimes at a sweetheart price. Other bidders will then be deterred from bidding because they will not be able to buy the target with its best assets intact. The courts reasoned that the the lock-ups would unduly end the ability of a third party to acquire the company before the target had fully explored other bids. In the Macmillian case, the court stated that at a minimum, a board needs to see if there are alternative bids before it agrees to a crown jewel lock-up. In the current example, AuthenTec has agreed to grant Apple the option to acquire a nonexclusive license mainly related to sensors that can be used in Apple products. The price of this option is $20 million. EG , Arcelor Mittal case GRAY KNIGHT is an informal and ambiguous intervener in the takeover battle that makes a counter bid for the shares of the target company. Interveners bid causes a lot of confusion amongst the original acquirer and the target company as the intentions behind his making a counter bid are not clear. Asecond,unsolicitdbidde r in a corporate takeover. A gray knight enters the scene in order to take advantage of any problems between the first bidder and the target company. Think of a gray knight as a circling vulture waiting to pick clean the leftovers. A gray knight is not after a hostile takeover, but does serve its own interests, as opposed to those of the target company. Often, a gray knight makes an unsolicited bid for the target company after the initial, friendly bid. The management of the target company prefers a gray knight to a black knight, but, of course, would most prefer to be acquired by a white knight.

8. SHARE BUY BACK OR TARGETED REPURCHASE The target firm purchases back its own shares from an unfriendly bidder at a price well above market value. Numbers of shares repurchased help target firm to regain controlling interest in the company by having adequate shareholders votes to prevent the hostile acquisition. Targeted repurchase considered a success if the strategy results in abandonment of the takeover attempt. Not necessary that the raider company may accept the price offered. Here the raider continues with its attempt of hostile

takeover and the target generally combines the targeted repurchase offer with another strategy. For Example: Setting up a holding company that receives all acquired shares and starting the process of converting the same into employee stock ownership plan (ESOPs). Defeats the very objective of pursuing a hostile takeover as raider left with no other option but to accept a market price for the shares under their control. Refusal to accept this generates risk of the shares becoming worthless, once ESOP is approved by the regulatory authorities. A buyback is, probably, the best defence in a takeover tussle. The Takeover Code allows a corporate to announce a buyback even after an acquirer has bid for it with an open offer. It can also work as a counter-offer or a competitive bid. All that a management has to do is pass a special resolution to purchase shares at a maximum price which the predator can never match. That is only a ceiling; it can actually be much lower. "The intelligent use of the buyback by promoters can stonewall hostile takeovers." BLACKMAILING In common usage, blackmail is a crime involving unjustified threats to make a gain or cause loss to another unless a demand is met. It may be defined as coercion involving threats of physical harm, threat of criminal prosecution, or threats for the purposes of taking the person's money or property. It is the name of a statutory offence in the United States, England and Wales, Northern Ireland, and Victoria, and has been used as a convenient way of referring to other offences, but was not a term of art in English law before 1968. It originally denoted a payment made by English people residing along the border of Scotland to influential Scottish chieftains in exchange for protection from thieves and marauders. Blackmail may also be considered a form of extortion. Although the two are generally synonymous, extortion is the taking of personal property by threat of future harm. It is the use of threats to prevent another from engaging in a lawful occupation and writing libelous letters or letters that tend to provoke a breach of the peace, as well as use of intimidation for purposes of collecting an unpaid debt. Some US states distinguish the offenses by requiring that blackmail be in writing. In some jurisdictions, the offence of blackmail is often carried out during the act of robbery. This occurs when an offender makes a threat of immediate violence towards someone in order to make a gain as part of a theft. For example, the threat of "Give me your money or I will shoot you" is an unlawful threat of violence in order to gain property. Blackmail means threatening to say something bad about someone unless that person pays some money. If someone has committed a crime, another person might blackmail them. The blackmailer might, for example, say that if the criminal does not give them a large amount of money they will tell th epolice.A blackmailer may threaten to say something embarrassing about someone unless they hand over a sum of money. Sometimes a business may blackmail another business. They might threaten to harm that business in some way unless money is paid.Blackmail is illegal (against the law). SCORCHED EARTH TACTICS (which is a form of a suicide pill) where the target company retaliates in the event of a hostile bid with actions that destroy the value of the company and

make it unattractive to the hostile acquirer. For example, this could be achieved by selling the crown jewels of the company at a substantially low value. Such transactions may not only require the approval of shareholders (Section 293 of the Companies Act, 1956), but may also leave open the possibility of shareholder suits if it can be established that the company (being the board of directors) have not acted in good faith. The article identifies other defences including embedded defences provisions in the articles of association entitling an incumbent to be a chairman for life, contractual provisions that trigger undesirable consequences in the event of a change in control, and the like. In the Indian context, the most successful defence against hostile takeovers is the high stakes that promoters hold in their companies. Often, promoters also gradually shore up their stake (through the creeping acquisition route) to fend hostile bids. High promoter stakes make it difficult for raiders to take control without bringing the promoters to the negotiating table. Finally, after dealing with takeover defences, on analysing the shareholding pattern of large listed companies, it was found that although promoters hold large stakes thereby effectively defending themselves against hostile takeovers, there are several top Indian companies where the promoter holding is not high enough to preclude a takeover. One of the reasons why such companies have not been exposed to hostile takeovers yet may be explained by Indias favourable economic climate, where stock prices continue to grow thereby leaving few targets for hostile bidders (as such bidders usually pursue undervalued stocks). But, in the event that share prices were to fall, Indian companies will likely face the prospect of hostile acquisitions primarily by foreign acquirers, and therefore hostile takeover activity is a distinct possibility in the Indian scenario, which companies will have to face up to.