Takeover

defenses
PRESENTED BY:HARSHITA CHABBRA
SURBHI AGGRAWAL
YAMINI SHARMA
JIGYASA SHARMA
AKSHAYA JAIN
AKHIL S
GAUTAM GUPTA
SHASHI SHEKHAR

Takeover

A takeover in business refers to one company (the

acquirer, or bidder) purchasing another (the
target).

Friendly takeovers :

When a bidder makes an offer for another, it will

usually inform the board of the target beforehand. If
the board feels that the value that the shareholder
will get will be greatest by accepting the offer, it
will recommend the offer be accepted by the
shareholders.

Hostile Takeover
A Hostile takeover is when one company attempts to
acquire another company against the wishes of the
management, shareholder and board of directors of
the target company.

A takeover would be considered hostile if

The board rejects the offer, but the bidder

continues to pursue it
The bidder makes the offer without informing the
board beforehand.

Poison Pills

A strategy used by corporations to discourage a hostile

takeover by another company. The target company
attempts to make its stock less attractive to the
acquirer.
One usual poison pill inside a Corporation Statement is
the clause which triggers shareholders rights to buy
more company stocks in case of attack. There are two
types of poison pills:
1. A "flip-in" allows existing shareholders (except the
acquirer) to buy more shares at a discount.
2. The "flip-over" allows stockholders to buy the
acquirer's shares at a discounted price after the merger.

White Squire
A white squire is similar to a white knight, except that
it only exercises a significant minority stake, as
opposed to a majority stake. A white squire doesn't
have the intent to take over a company, but rather
serves as a figurehead to a defense to a hostile
takeover. The white squire may often also get special
voting rights for their equity stake.
Examples of White Knights
1953 - United Paramount Theaters buys nearly
bankrupt ABC
1986 - George Soros's Harken Energy buying George W.
Bushs Spectrum 7

Greenmail
A situation in which a large block of stock is held by
an unfriendly company. This forces the target
company to repurchase the stock at a substantial
premium to prevent a takeover. It is also known as a
"Bon Voyage Bonus" or a "Goodbye Kiss".
Examples of Greenmail
Greenmail proved lucrative for investors such as Sir
James Goldsmith. Goldsmith made $90 million from
the Goodyear Tire and Rubber Company in the 1980s
in this manner

Golden Parachutes

A golden parachute is a clause(or several) in an

executive's employment contract specifying that they will
receive certain large benefits if their employment is
terminated. Sometimes it is only in the case that the
company is acquired and the executive's employment is
terminated as a result, but not always. These benefits
can be cash bonuses, stock options or a combination of
the items.
The use of golden parachute have caused some investors
concern since they don't specify that the executive had
to perform successfully to any degree. Their concern is
understandable since many golden parachute clauses can
promise benefits well into the millions

Gray Knight

A gray knight is an acquiring company that enters a

bid for a hostile takeover in addition to the target
firm and first bidder. The gray knight is more
favorable than the black knight (unfriendly bidder),
but less favorable than the white knight (friendly
bidder); it will usually take advantage of any
problems between the target firm and other
bidders.

Scorched Earth

An anti-takeover strategythat a firm undertakesby

liquidatingits valuable and desired assets in an
effort to make the proposed takeover unattractive to
the acquiring firm.
Takeover bids normally happens over corporations
with some crown jewells. One of takeover defenses
consists in making target company unattractive for
raiders. This strategy can be implemented by several
ways. Like selling or spining off valuable assets,
taking serious risky treasury cash management, or
with fullfilment of corporate liabilities.

Standstill Agreement

A standstill agreement is usually an instrument of a hostile takeover

defense, in which an unfriendly bidder agrees to limit its holdings of
a target firm. In many cases, the target firm is willing to purchase
the potential raiders shares at a premium price, thereby enacting a
standstill or eliminating any takeover chance. By establishing this
provision with the prospective acquirer, the target firm will have
more time to build up other takeover defenses.
In May 2000, Health Risk Management, Inc. (HRM), a health care
company, resolved issues with Chiplease Inc., Banco Panamericano,
Inc., Leon Greenblatt and Leslie Jabine, a shareholder group with
approximately 14% of HRM shares. Under the standstill agreement
between HRM and these shareholders, HRM agreed that it will allow
the shareholder group designation of one director on the HRM board
of directors, increase in holdings by about 10%, and voting rights; in
return, the shareholder group agreed to dismiss all litigation.

Jonestown Defense

A defensive strategyby whichthe target company

engages in an activity that might actually ruin the
company rather than prevent the hostile takeover.
Also known as a "suicide pill."
In this strategy, the target firm engages in tactics
that might threaten the firms existence and is an
extreme version of the poison pill.
The term refers to the 1978 Jonestown mass suicide
in Guyana, where Jim Jones led the members of the
Peoples Temple (a religious cult) to commit mass
suicide.

Buy-Back

A buyback is a method for company to invest in itself

since they can't own themselves. Thus, buybacks
reduce the number of shares outstanding on the market
which increases the proportion of shares the company
owns.Buybacks can be carried out in two ways:
1. Shareholders may be presented with a tender offer
whereby they have the option to submit (or tender) a
portion or all of their shares within a certain time
frame and at a premium to the current market price.
This premium compensates investors for tendering their
shares rather than holding on to them.
2. Companies buy back shares on the open market over
an extended period of time.

Leveraged Buyout

The acquisition of another company using a significant amountof

borrowed money (bonds or loans) to meet the cost of acquisition.
Often, the assets of the company being acquiredare used as
collateral for the loans in addition to the assets of theacquiring
company. The purpose ofleveraged buyouts is to allow companies to
make large acquisitions without having to commit a lot of capital.
In an LBO, there is usually a ratio of 90% debt to 10% equity. Because
of this high debt/equity ratio, the bonds usually are not investment
grade and are referred to as junk bonds. Leveraged buyouts have
had a notorious history, especially in the 1980s when several
prominent buyouts led to the eventual bankruptcy ofthe
acquiredcompanies. This was mainly due to the fact that the
leverage ratio was nearly 100% and the interest payments were so
large that the company's operating cash flows were unable to meet
the obligation.