University of Management & Technology | School of Law & Policy

LL.M. in Commercial Law | Mergers & Acquisitions

Lecture Note 5 | Session 5

KINDS OF MERGERS & ACQUISITIONS

(Friendly & Hostile)
v FRIENDLY
§ Approval
§ Same interest group

v HOSTILE
§ Unfriendly
§ Against the wishes of the board (and usually management) of the target company
§ Rejection of takeover offer
§ Pursuance through other means
§ Direct acquisition of shares or through proxies
Ø Tender Offer: Made where the acquiring company makes a public offer at a fixed
price above the current market price of shares
Ø Creeping Tender Offer: Purchasing enough shares in the open market to take
control of management
Ø Proxy Fight: the acquiring corporation tries to persuade the existing shareholders of
the Target to allow them the use their voting rights as their proxies, so that they can
install new management or take other types of corporate action to the achieve the
desired result - its own candidates installed on the board of directors.

⇒ Pakistan Example - Proxy Fight

Mansha Group’s takeover of Adamjee Insurance Company Ltd.

v DIFFERENCES IN ACQUISITION OF PRIVATE & PUBLIC COMPANIES

v DISTINGUISH ASSET V STOCK PURCHASE
v ADVANTAGES AND DISADVANTAGES OF TAKEOVERS

v DEFENSIVE STRATEGIES OF TARGETS AGAINST TAKEOVERS

I. Preventive or Built-In Defensive Measures/ Shark Repellent

§ Here are a few examples:

⇒ Golden Parachute is a provision in a CEO's contract. It states that he will get

a large bonus in cash or stock if the company is acquired. This makes the
acquisition more expensive, and less attractive.

⇒ Supermajority - a defense that requires 70 or 80 percent of shareholders to

approve of any acquisition (Company’s Documents).

⇒ Staggered Board of Directors - drags out the takeover process by

preventing the entire board from being replaced at the same time. The terms
are staggered, so that some members are elected at different periods.
(Companies Ordinance 1984/Companies Act 2017?)

⇒ Dual-Class Stock – voting and non-voting stock - allows company owners to

hold onto voting stock, while the company issues stock with little or no voting
rights to the public.

1



University of Management & Technology | School of Law & Policy
LL.M. in Commercial Law | Mergers & Acquisitions
Lecture Note 5 | Session 5

II. Active Measures Post-Takeover Bid

§ Once acquisition process it has begun.

§ The Poison Pill or Shareholders’ Rights Plan
§ POISON PILL: One of the more common defenses is the poison pill. A poison pill
can take many forms, but it basically refers to anything the target company does to
make itself less valuable or less desirable as an acquisition:

o Flip-in - This common poison pill is a provision that allows current

shareholders to buy more stocks at a steep discount in the event of a
takeover attempt. The provision is often triggered whenever any one
shareholder reaches a certain percentage of total shares (usually 20 to 40
percent). The flow of additional cheap shares into the total pool of shares for
the company makes all previously existing shares worth less. The
shareholders are also less powerful in terms of voting, because now each
share is a smaller percentage of the total. This makes the takeover attempt
more difficult and more expensive.

o Flip-Over: Allows shareholders to buy the acquirer's shares at a discounted

price after the merger/acquisition. Scheme whereby shareholders will have
the right to buy more shares at a discount if one shareholder buys a certain
percentage of the company's shares. Example: when any one shareholder
buys 20% of the company's shares, every shareholder (except the one who
possesses 20%) will have the right to buy a new issue of shares at a
discount, thereby diluting the original shareholders acquisition.

o Crown Jewels defense –the specific attractive aspect of a company which is

particularly valuable is sold or spun off.

o Jonestown Defense – the drastic poison pill method - involve deliberately

taking on large amounts of debt that the acquiring company would have to
pay off. This makes the target far less attractive as an acquisition.

o Greenmail - like blackmail, but it's green to represent the money the target
must spend to avoid the takeover – buy back the stock of the target from the
acquirer.

o White Knight - a common tactic - in which the target finds another company
to come in and purchase them out from under the hostile company.

o Pac-Man Defense-Target company turns the tables and tries to takeover the
acquirer

o People Pill - High-level managers and other employees threaten that they
will all leave the company if it is acquired. This only works if the employees
themselves are highly valuable and vital to the company's success.

o Golden Parachutes: Directors and/or key management personnel would

have to be paid prohibitive compensation for their removal from board and
management positions thereby discouraging a takeover attempt

Ø Pakistan Relevant Laws

§ Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002
§ Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations, 2017