Chapter 14: takeover

Question 1

tender offer

Answer 1

public solicitation by bidder to purchase shares directly form SH, bypassing target’s board

Question 2

technique to acquire control

Answer 2

private transaction large block from controlling SH
creeping acquisition: open market until threshold
public tender offer: premium
proxy fight: replacing board member

Question 3

defensive measure (9)

Answer 3

• stock buyback (↑ price)
• white knight (friends)
• crown jewels (↓ comp price)
• pac-man defence (acquire bidder)
• new shares (dilute stake)
• dutch stitching (indep foundation)
• shark repellent (staggered board / supermajority)
• golden parachute (↑ compensation package)
• poison pill

Question 4

poison pill

Answer 4

flip in pill (steep discount)
flip over pill (cheap acquirer shares)
dead hand pill (cant remove poison pill)

Question 5

defensive measures justify when

Answer 5

offer undervalues comp
market temporarily distress
coercive tactic

Question 6

(+) tender offer regulation

Answer 6

ensure SH exit right
prevent coercive offer
mandate disclosure

Question 7

(-) tender offer regulation

Answer 7

discipline corpo manager
↑ takeover cost

Question 8

pro mandatory bid (EU)

Answer 8

minority get liquidiyt
↑ investor confidence

Question 9

anti mandatory bid (US)

Answer 9

↑ takeover cost (chilling effect)
↑ inefficient management

Question 10

factors to consider when evaluating a tender offer

Answer 10

1. price (hidden assets)
2. type (cash vs stock)
3. scope (full vs partial buyout)
4. bidder intent (strategic growth vs asset-stripping)

Question 11

why should director decide and not SH

Answer 11

coordination
bargaining power
info asymmetry

Question 12

William Act

Answer 12

acquiring +5% need to file form at SEC within 10 days:
- pro rata rule
- all holder rule
- best price rule

Question 13

EU 13 directive

Answer 13

mandatory bid at equitable price
board neutrality (without SH approval during hostile)
-> Portuguese compromise (opt-out)
-> decision taken before the bid (outside scope? frustrate bidder?)
Breakthrough rule: share transfer and voting right suspended if successful offer

Question 14

Italian

Answer 14

flexible threshold -> protect controlling SH

Question 15

french

Answer 15

loyalty share -> protect from hostile takeover
abandon board neutrality + ↑ employee info

Question 16

german

Answer 16

two-tier board system -> barrier to takeover

Question 17

unocal test

Answer 17

reasonable threat (coercion, undervaluation)
proportional response

Question 18

revlon vs MacAndrews

Answer 18

when sale is unavoidable -> board shift from defender to auctioneer
defence cant be valid is there is no price reasons