sDefense(42p) - Lecture Overview: M&A Preventing...

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Slide 1 Review of the takeover process Terminology Defensive techniques
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Slide 2 Takeover defenses General question is corporate governance Why should BOD ever try to resist a takeover Remember what occurs to a target firm’s share price
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Slide 3 Takeover defenses Corporate Governance Why should BOD ever try to resist a takeover? Stock Price 30% to > 100% increase t - takeover bid announced
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Motives for managerial resistance Hidden values “Intrinsic value” must exceed unsolicited bid Fiduciary duty to defeat inferior bids Higher alternative takeover bid Time to shop target Promote auction Retain managerial positions 65% of targets have management turnover Golden parachutes help align managerial incentives
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Slide 5 The agency problem Managers Shareholders Bidder
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Slide 6 The agency problem Managers Shareholders Board of Directors Bidder
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Slide 7 Takeover defenses Corporate Governance Why should BOD ever try to resist a takeover? Underpriced bid Suppose that the current share price is $20, a bid is announced at $22. The managers believe that the stock is actually worth $30.
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Slide 8 Takeover defenses Corporate Governance Why should BOD ever try to resist a takeover? Two-Tier bid Suppose that the current share price is $20. The managers AND the shareholders believe that the stock is actually worth $30. However, bidder offers to pay $27 for the first 51% of the company shares, and $22 for the last 49% of the company. Nervous shareholders who don’t trust the other shareholders to hold for $30 will rush to sell their shares.
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Slide 9 Takeover defenses Corporate Governance What to do? In the Shareholder agreement, or elsewhere, ban two-tier bids Bring all shareholders together in an emergency meeting to hold a block vote on the sale of shares Emergency meeting to give management right to block a bid The importance of the first 50% and minority shares
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Slide 10 Takeover defense: Good offense Avoid ever coming in to play Highly efficient, strong sales growth, high profitability However, you may become even more desirable this way Keep Long-range investment plan payoffs reflected in current stock-price
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Slide 11 Takeover defense: Under the radar Characteristics that make the firm vulnerable: Low stock price/book value (Assuming bv is replacement) Highly liquid balance sheet Excess cash, securities portfolio, unused debt capacity Strong cash flow for current stock prices Break-up potential: pieces to sell Management has little control of stock
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Slide 12 Takeover defense: Under the radar Move back under the radar if you have popped up Increase debt and repurchase shares Increase dividends on remaining shares Change loan covenants requiring accelerated repayment if
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This note was uploaded on 04/02/2009 for the course DEPARTMENT FIN 4320 taught by Professor Sherwoodbishop during the Spring '08 term at Southwestern.

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sDefense(42p) - Lecture Overview: M&A Preventing...

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