Corp Raid - Corporate Raiding Business Ethics Notes...

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Corporate Raiding Business Ethics Notes, February 21, 2007 Strategy Seize control, or threaten to seize control, of a corporation by purchasing more than 50% of its shares Once a shareholder owns over 50% of shares, he can handpick the members of the Board of Directors and install a new CEO, even himself. Once the raider takes over the corporation, he can fire employees, sell off business, or even shut down the company. The targeted company’s CEO and other management vigorously fight the raid out of fear of losing their valued place in the company. Raiders look for companies with “undervalued” shares, as compared to the share price of comparable companies or compared to the company’s performance and assets. Whether shares are undervalued is a matter of economic judgment. Examples of Raids (2) 1. T. Boone Pickens’ raid of General American Oil In December, 1982, Pickens made a tender offer of $520 million in cash to purchase a preponderance of shares of General American Oil. GAO found a “white knight” in Phillips Petroleum, who bought the company for $1.2 billion. Pickens received $15 million to drop the raid of GAO and sell off his shares, which raked in an additional profit of $46.3 million. Pickens’ total profit was $61.3 million for a brief period of activity during which he produced nothing of value to anyone except himself. 2. The Bendix Affair (Bendix takeover of Martin Marietta) The Bendix affair began in April, 1982, when Bendix Chairman Bill Agee (MBA, Harvard) targeted Martin Marietta, a high-tech firm specializing in MX missiles and the shuttle program. Agee wanted to expand Bendix’s production into more
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This note was uploaded on 04/06/2008 for the course ENG 2420 taught by Professor Mullet during the Spring '08 term at East Carolina University .

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Corp Raid - Corporate Raiding Business Ethics Notes...

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