C39 CN Tutorial 7 - Anti-Takeover Defence Answer.doc

The announcement of a poison pill is generally taken

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The announcement of a poison pill is generally taken as a sign of entrenchment. However, evidence suggests that the overall relationship depends on the level of insider shareholding. At low levels of insider shareholding, the announcement can be positive. 9. What are the implications of the following Corporate Charter Amendments? a. Staggered boards Usually 1/3 of the board is replaced every year. This means that it will take at least two years for the acquirer to place their own directors. b. Supermajority provisions This is when key decisions require a support of more than 50%. e.g. 68% to 80% shareholder support may be required to approve the sale of the company or to remove a poison pill. c. Fair price provisions This is when the target company’s articles specify a minimum price which must be paid to shareholders in the event of a takeover. The price is usually specified in terms of p-e ratio or price relative to medium term share price performance. d. Dual capitalizations This is when there are two classes of share. One class of shares with superior voting rights tends to be COURSE NOTES: TUTOR CODE TITLE
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SCHOOL OF MANAGEMENT AND LANGUAGES 4 concentrated in the hands of the company founders or other insiders such as management. Many smaller shareholders are happy to hold inferior voting shares in exchange for higher dividends as any votes they might acquire would make little difference anyway. e. Antigreenmail provisions i.e. The company will not be blackmailed by pretend takeover bids which are really just intended to solicit greenmail. The acquirer needs to commit. 10. Briefly explain the following active takeover defences. a. Greenmail Payment of a premium to buy back target shares from hostile shareholders threatening to acquire the firm. b. Standstill Agreements Payment to threatening shareholder not to purchase any more target shares. c. White Knights Friendly buyer which is preferred to hostile bidder d. White Squire Friendly buyer of a block of target stock that it is put in safe hands e. Lock-Up Transactions : Sale of assets that make target less desirable, usually to ‘friendly company’.
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  • Fall '17
  • JPM
  • Martin Lipton

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