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Mergers & Acquisition

Presented by: Mohammad

Akram
MBA 6th

Course instructor
Sir M.Faisal

During the fourth merger wave of the 1980s,

increasingly powerful takeover tactics were
required to complete hostile acquisitions because
potential targets raise ever-stronger antitakeover
defenses. Before this period, comparatively
simple tactics had been sufficient to force a
usually surprised and confused target into
submission.

TAKEOVER TACTICS
The bidder is typically left with the choice of three main tactics: a
bear hug, a tender offer, and a proxy fight. Each tactic has its
strengths and weaknesses. In addition, each may be implemented
in varying manners to increase the likelihood of success.
Bear hug

Tender offer
Proxy fight

TAKEOVER TACTICS
Bear hug
A bear hug is an offer made by one company to buy the shares
of another for a much higher per-share price than what that
company is worth. A bear hug offer is usually made when
there is doubt that the target company's management is willing
to sell.
bear hugs are the least aggressive and often occur at the
beginning of a hostile takeover.

TAKEOVER TACTICS
Tender offer
The tender offer is a public, open offer or invitation (usually
announced in a newspaper advertisement) by a prospective acquirer to
all stockholders of a publicly traded corporation (the target
corporation) to tender their stock for sale at a specified price during a
specified time

TAKEOVER TACTICS
Proxy fight
A proxy fight or proxy battle is an unfriendly contest for the
control over an organization. The event usually occurs when
corporation's stockholders develop opposition to some aspect
of the corporate governance, often focusing on administrative
and management positions.

PRELIMINARY
TAKEOVER STEPS

Establishing a Toehold
A purchase of less than 5% of a target company's outstanding stock
made by an acquiring company.
A toehold purchase of just under 5%, while not a significant stake
in a firm, allows the shareholders a "toe-holds" grip on the
company and its decision making

Bidding Strategies
A bidder has to consider the responses of not just the target
but also other bidders. In an analysis of thousands of bids
over the period 1980-2002 Betton, Eckbo, and Thorburn
found that the initial bidder was successful two-thirds of the
time.

Casual Pass
Before initiating hostile actions, the bidder may attempt some
informal proposal to the management of the target. This is
sometimes referred to as a casual pass.
.

Bypass Offers
A bypass offer is one which is unsolicited and which was not
preceded with negotiations or discussions between the
managements of the two companies.

AKRAM

Open Market Purchases

The courts have generally found that open market purchases do
not by themselves represent a tender offer. Generally, they do
require that the purchaser file a Schedule TO. One version
of open market purchases is a creeping tender offer, which is the
process of gradually acquiring shares in the market or through
private transactions.

History of the Tender Offer

The tender offer was the most frequently used tool of hostile
takeovers in the 1980s, whereas the proxy fight was the weapon
of choice in earlier years.

Reason for Using a Tender Offer

A company usually resorts to a tender offer when a friendly
negotiated transaction does not appear to be a possible
alternative. In using a tender offer, the bidder may be able to
avoid management and obtain control even when the managers
oppose the takeover.

Success Rate of Tender Offers

Based on experience in the years from 1990 to 2009, the success
rate of total contested tender offers for publicly traded
companies was 58% on a weighted average basis.

Cash versus Securities Tender Offers

The firm that is initiating a tender offer may go with an allcash tender offer or may use securities as part or all of the
consideration used for the offer.

OPEN MARKET PURCHASES

AND STREET SWEEPS

OPEN MARKET PURCHASES

AND STREET SWEEPS
A hostile bidder may accumulate stock in the target before making a
tender offer. As noted previously, the purchaser usually tries to keep
these initial purchases secret to put as little upward pressure as possible
on the targets stock price.

Investment strategy where a large portion of a company's shares are

bought at one time. Most commonly, this occurs when an individual,
group, or company is trying to takeover or gain control of another
company. also called market sweep.

Significant stockholdings accumulated through open market

purchases may be sufficient to offset defenses such as
supermajority voting provisions.

The open market purchase of stock may be a precursor to a tender

offer, but it may also be an effective alternative to a tender offer.
When a hostile bidder concludes that the tender offer may not be
successful, it may decide not to initiate one.

ADVANTAGES OF TENDER
OFFERS OVER OPEN
MARKET PURCHASES

Open market purchases may at first seem to provide many

advantages over tender offers. For example, they do not involve
the complicated legal requirements and costs associated with
tender offers.
(The bidder must be concerned that the open market
purchases will be legally interpreted as a tender offer.)

Do a tender offer for additional shares.

In this case, the bidder incurs the tender offer expenses in addition to
the costs of the open market purchasing program. Begin a proxy
fight. This is another costly means of acquiring control, but the
bidder, after having already acquired a large voting position, is now
in a stronger position to launch a proxy fight.
Sell the minority stock position.
These sales would place significant downward pressure on the stock
price and may result in significant losses.

Arbitragers and Takeover Tactics

Arbitragers are firms that accumulate shares of companies that

are targeted for acquisitions. If a given deal is completed,
arbitragers will profit from the difference between the
purchase price and the takeover price. The arbitrager may also
hedge its investment by selling the acquirers stock short.

AKRAM

ARBITRAGE AND THE DOWNWARD PRICE

PRESSURES
AROUND M&A ANNOUNCEMENTS
Research has shown that the stock price of acquirers tends to
decline, especially those which use stock to finance bids, around
the date of an announcement of an offer. Mitchell, Pulvino, and
Stafford analyzed 2,130 mergers over the period 19942000 and
found out that approximately one-half of this downward effect
was caused by the short selling actions of arbitragers.

Arbitragers will buy the targets shares, which puts upward

price pressure on the targets stock while often selling that
bidders shares in an effort to lock in a specific gain. One of
the interesting results of their research was that they found
these price effects were relatively short lived.

PROXY FIGHTS

A proxy fight is an attempt by a single shareholder or a group of

shareholders to take control or bring about other changes in a
company through the use of the proxy mechanism of corporate
voting. Proxy contests are political processes in which incumbents
and insurgents compete for shareholder votes through a variety of
means including mailings, newspaper advertisements, and
telephone solicitations. In a proxy fight, a bidder may attempt to
use his voting rights and gain support from other shareholders to
oust the incumbent board and/or management.

Proxy Fight Data

Corporate
Voting

Elections
by Proxy

Calling

a Stockholders Meeting

Record Date
Shares

Held in Street Names

AKRAM

Different Types of Proxy Contests

Contests

for seats on the board of directors.

Contests

about management proposals.

Regulation
Proxy

of Proxy Contests

Contests: From the Insurgents Viewpoint

Dead

Shares Problem

Target

Size and Proxy Fight Success

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Proxy Fight Process

Starting

the Proxy Fight.

The

Solicitation Process.

The

Voting Process.

Voting Analysis
Shares

controlled by institutions.

Shares

controlled by insurgents and shareholder groups

unfriendly to management.

Shares

controlled by brokerage firms.

AKRAM

Costs of a Proxy Fight

Professional
Printing,

fees.
mailing costs, and communications costs.

Litigation
Other

costs.
expenses.

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