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Louis mass chairman of sterling winthrop dismissed

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Unformatted text preview: fear stockholders, they will oVen put their interests over stockholder interests ¤༊  ¤༊  ¤༊  ¤༊  ¤༊  Greenmail: The (managers of ) target of a hosIle takeover buy out the potenIal acquirer's exisIng stake, at a price much greater than the price paid by the raider, in return for the signing of a 'standsIll' agreement. Golden Parachutes: Provisions in employment contracts, that allows for the payment of a lump- sum or cash flows over a period, if managers covered by these contracts lose their jobs in a takeover. Poison Pills: A security, the rights or cashflows on which are triggered by an outside event, generally a hosIle takeover, is called a poison pill. Shark Repellents: AnI- takeover amendments are also aimed at dissuading hosIle takeovers, but differ on one very important count. They require the assent of stockholders to be insItuted. Overpaying on takeovers: AcquisiIons oVen are driven by management interests rather than stockholder interests. Aswath Damodaran 18 Overpaying on takeovers 19 ¨༊  ¨༊  ¨༊  The quickest and perhaps the most decisive way to impoverish stockholders is to overpay on a takeover. The stockholders in acquiring firms do not seem to share the enthusiasm of the managers in these firms. Stock prices of bidding firms decline on the takeover announcements a significant proporIon of the Ime. Many mergers do not work, as evidenced by a number of measures. The profitability of merged firms relaIve to their peer groups, does not increase significantly aVer mergers. ¤༊  An even more damning indictment is that a large number of mergers are reversed within a few years, which is a clear admission that the acquisiIons did not work. ¤༊  Aswath Damodaran 19 A case study in value destrucIon: Eastman Kodak & Sterling Drugs Kodak enters bidding war ¨༊  ¨༊  ¨༊  ¨༊  In late 1987, Eastman Kodak entered into a bidding war with Hoffman La Roche for Sterling Drugs, a pharmaceuIcal company. The bidding war started with Sterling Drugs trading at about $40/share. At $72/share, Hoffman dropped out of the bidding war, but Kodak kept bidding. At $89.50/share, Kodak won and claimed potenIal synergies explained the premium. Kodak wins!!!! ! Earnings and Revenues at Sterling Drugs 21 Sterling Drug under Eastman Kodak: Where is the synergy? 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1988...
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