5.4. Anti-takeover defenses (2) – pre-offer defenses

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来自 Moscow Institute of Physics and Technology 的课程

Mergers and Acquisitions – The Relentless Pursuit of Synergy

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Moscow Institute of Physics and Technology

Mergers and Acquisitions – The Relentless Pursuit of Synergy

10 个评分

课程 4（共 5 门，Specialization Understanding Modern Finance）

The area of mergers and acquisitions (M&As) is special in finance. Incredible amounts of money are employed in such transactions. Deals draw a lot of public attention and dispute. Oftentimes, stories look more like fairy tales rather than financial reality. The key idea in any M&A transaction is to create value through a potentially synergetic activity. To this end, it is important to have a clear motive and implementation plan. Of special importance are the correct valuation, proper financing, and actual deal completion. But this is not the end – value mostly accrues from the post-merger integration. The understanding of the motives of various stakeholders is instrumental in the analysis of the potential creation of value. The learners will gain insight into the core value creating M&A strategies. They will be able to use the obtained knowledge and skills to successfully advance in their career at a financial institution, as well as in the area of financial management at non-financial businesses. Finally, the Course is very helpful in successful completion of the Specialization’s Final Project.

从本节课中

Value-Creating Strategies. Anti-Takeover Defenses. Corporate Governance and Performance. Conclusions – the Relentless Pursuit of Value

Week 5 – the final week of the Course – focuses on the details of value creating strategies. We start with share repurchases and their effect on value. Then we analyze anti-takeover defenses as value creating strategies. We proceed with the discussion of corporate governance. Although in M&As this concept has somewhat narrower meaning, we try to relate the advantages and costs of a well-functioning and efficient corporate governance system to the development of the M&A market. On a specific example we analyze the potentially value-destroying conflicts that may arise from the underdeveloped corporate governance system. Finally, we identify the role of post-transaction merger integration in the creation of value. We provide some conclusions on M&A efficiency and synergy. At the very end, we summarize the Course and the Specialization and briefly discuss the Final Project.

5.1. Value creating strategies4:45

5.2. Share repurchases. Fixed-price tender offers14:29

5.3. Anti-takeover defenses (1) – returns to bidders and targets10:10

5.4. Anti-takeover defenses (2) – pre-offer defenses8:41

5.5. Anti-takeover defenses (3) – post-offer defenses9:24

5.6. Corporate governance in the US – an overview18:14

5.7. Corporate governance in other countries – who will pay?9:59

5.8. An example of corporate governance – Russian preferred shares9:19

5.9. Implementation and integration – key to success5:16

5.10. Some conclusions – the relentless pursuit of synergy7:28

5.11. Summary of the Specialization. Overview of the Project5:46

与讲师见面

Konstantin Kontor
Director and Professor of Finance and Strategy
American Institute of Business and Economics (AIBEc)

So, now, we are coming close to some specifics of takeover defenses as they are

used in order to either fend off the bidder or to raise the offer.

Now, this area is really full of a very special buzz words,

something like shark repellents,

poison pills, crown jewels and others.

And these make this idea of takeover defenses

very special area that attracts a lot of journalists and even movie makers,

so the people who talk about this because this is kind of interesting.

But what we will do here,

we will talk about what exactly is them,

why and how that potentially results in value creation.

We'll break down takeover defenses in two major areas.

One area that is discussed in this episode is a set of measures

that are actually takeover defenses that exist before the offer.

And if the offer is made, then,

so before they were sort of sleeping,

and then they wake up.

So these are like some specific weapons that are being stored in the company normally,

but in the company's charter,

to make sure that if someone comes,

then they can use them.

And the other set that we'll discuss in the next episode is what

can be done after the offer was made.

And that creates sort of a dilemma to what extent this is

fair if we try to fend off the potential bidder,

then this bidder is sort of treated in a discriminatory way.

So let's start with the pre-offer defenses.

Let me put it like this is takeover defenses part two pre-offer.

Well, first of all,

that includes these famous shark repellent,

these are charter amendments.

Well, one is staggered board.

That means that although, let's say,

in the board of directors by the charter,

you can reelect all the, let's say,

one-third of the members each year.

So if a bidder comes and does get control in terms of the stock,

then the bidder will be able to control the board of

directors at the earliest in two years because this year,

the only way is to reelect one-third and then in the second year, another third.

Well, again, it's kind of strange, right?

Because you own this control.

But in the charter, it goes like this.

And maybe when there is no potential takeover, this is nice.

No one bothers that those in accordance with

certain procedure and that becomes a problem only for the potential bidder.

Now, by the same token,

there may be things like super majority that basically says

that for all important decisions in

the company that do not deal with its potential takeover,

it's fine to have the majority of voting stock.

But to approve of the takeover,

you have to have, let's say,

80 percent of the stock.

So, clearly, for the buyer,

it's not enough to get control of the buyer has to pay more for, let's say,

other 30 percent of stocks or of shares of stock outstanding.

So that just becomes much more expensive.

Or maybe the so-called fair price.

So, there is an amendment that if

a significant block of shares is being purchased by an outsider,

then there is a certain formula that says that you have to pay at least that much.

So, this is aimed at blocking control,

and these, they just make the appeal of control much more expensive.

That is why it's called the shark repellent. Maybe if you said,

"Well, our charter is like this."

And, again, the buyer knows that because you can buy one share of

stock and then you get access

to the charter of the company because you become a shareholder.

Then you read all that,

and you realize what's going on.

Now, the next thing here is poison pills.

Well, the whole idea of poison pills is that, again,

it's when there is no takeover,

there are no poison pills,

but if someone comes and says,

"I'd like to take your company over," then you say, "Fine."

Now, the existing shareholders are

being treated in a preferred way and say, "This isn't fair."

Well, it is, but it is sort of inside the charter of the company.

And so these poison pills are triggered only if there is a hostile takeover attempt.

And that may be,

let's say that you can offer

your stock to the existing shareholders at

the bargain basement price that is below the market.

So these people accumulate larger blocks of shares and

effectively prevent the bidder from getting control.

Or in some cases,

you may go ahead and make offers to even

buy this stock of the bidder on some terms.

So, but this whole idea again,

so if you went ahead and made a takeover,

then you swallow this poison pill and that

becomes unfortunately more expensive and more headache for you.

And the next thing here that I would like,

that I guess is worthwhile discussing,

this is so-called dual class recap.

So that is part of the broader class of strategies in M&A transaction.

This is restructuring or reorganization but dual class recap is as follows.

So there are various kinds of shares of voting stock.

So, some of them are just plain stock,

but some have superior voting rights.

All that happens before the offer.

So this sits in their charter.

And these super voting shares of stock,

they normally belong to the big stakeholders in this company.

So, sometimes if you buy,

it is difficult for you as a bidder to buy stock from these special guys.

And, therefore, if you buy a lot of stock from all other smaller people who don't care,

then still you cannot enjoy majority.

So, all these things,

they indeed are sort of an unfair or discriminatory treatment

of the bidder as a way of takeover defense.

But they're all prepared before the offers.

So, to some extent,

you can say, "Well, this is discriminatory,

but this is not unfair," because anyone can know what's going on

if this company comes in and makes a tender offer.

In the next episode, however,

we will go on and see what can happen after the hostile offer has been made.

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