04

 Types of takeovers
 Legal takeovers
 Business takeovers
 Reverse takeovers
 Back flip takeovers
 Strategies to thwart takeovers
 Common types of poison pills
 Squeeze out
 Takeover is another name of acquisition
 A takeover occurs when an acquiring firm takes over
control of the target company. The acquirer may do
this either with or without the consent of the
shareholders of the target company.
 Take over happen by the purchase of shares from
shareholders at a specified price. By purchasing or
controlling over 50% of the shares, the purchaser or
acquirer gains control of the target company.
 Legal takeover
 Enactment
 Friendly
 Hostile
 Bailout
 Business
 Horizontal
 Vertical
 Conglomerate
 Reverse
 Back flip
 Enactment – Takeovers are governed by specific
laws. There are times when a company is legally
forced to takeover another company or a takeover
happens by law. The nationalization of banks in India
in 1969 is a classic example of a legal takeover.
 Friendly takeover is one in which a target company’s
management and board of directors agree to a merger
or acquisition by another company.
 Hostile Takeover - The acquisition of the company
targeted by the acquiring company occurs not by the
two companies coming to an agreement , but by the
acquiring company going directly to the targeted
company’s shareholders or fighting to replace
management in order to get the acquisition approved
by or by buying the majority of the target company’s
share from individual shareholders or the market.
 Bailout Takeover - This involves the takeover of a
financially sick company by a financially rich
company as per the provisions of the Sick Industrial
Companies (Special Provisions) Act (1985). The
objective of this takeover is to bail out the sick unit
from losses.
 Horizontal takeover- of one company by another
company in the same industry. The main purpose
behind this kind of takeover is achieving the
economies of scale of increasing the market share.
Example takeover of Hutch by Vodafone.
 Vertical takeover- Takeover by one company with its
suppliers or customers. The former is known as
Backward integration and later is known as forward
integration- takeover of Sona Steering Ltd by Maruti
Udyog Ltd. is a backward takeover. The main
purpose behind this kind of takeover is reduction in
costs.
 Conglomerate takeover- Takeover of one company
operating in totally different industries. The main
purpose of this kind of takeover is diversification.
 Reverse takeover- A reverse takeover is a type of
takeover where private company acquires a public
company. This is usually done at the instigation of the
larger, private company, the purpose being for the
private company to efficiently float itself while
avoiding some of the expense and time involved in a
conventional IPO
 Back flip takeovers-A back flip takeover is any sort
of takeover in which the acquiring company turns
itself into a subsidiary of the purchased company.
 Management of target companies often employ
several strategies to thwart takeovers.
 Back end - A merger following a tender offer in a
two-step merger structure in which a buyer acquire
all the target company’s stock following the merger.
 Bankmail- In a bankmail engagement, the bank of a
target firm refuses financing options to firms with
takeover bids. Thwarting merger acquisition through
financial restrictions
 Crown Jewel Defense - In business when a company
is threatened with takeover, the crown jewel defense
is a strategy in which the target company sells off its
most attractive assets to a friendly third party or spin
off the valuable assets in a separate entity
 Flip- in - The flip-in is one of the five main types of
poison pill defenses against corporate takeovers. The
flip-in is a provision in the target company’s
corporate character or bylaws.
 Flip over- A flip-over is another of the five types of
poison pills in which current shareholders of a
targeted firm will have the option to purchase
discounted stock after the potential takeover.
 Golden Parachute - A golden parachute has been
defined as an agreement between a company and an
employee (usually a senior executive) specifying that
the employee will receive certain significant benefits
if employment is terminated.
 Green mail -Green mail or greenmailing is the
practice of purchasing enough shares in a firm to
threaten a takeover, thereby forcing the target firm to
buy those shares back at a premium in order to
suspend the takeover.
 Jonestown Defense – The Jonestown defense is an
extreme corporation defense against hostile
takeovers. In this strategy, the target firm engages in
tactics that might threaten the firm’s existence to
thwart in imposing acquirer’s bids.
 Killer bees – Killer bees are firms or individuals that
are employed by a target company to fend off a
takeover bid. They aid by utilizing various anti-
takeover strategies thereby making the target
company economically unattractive and acquisition
more costly.
 Knight- In takeovers there are four types of knights-
the white knight, the grey knight, the yellow knight
and the black knight.
 White knight- In business, a white knight, or
“friendly investor”, may be a corporation or a person
that intends to help another firm. A white knight can
help the target firm by offering terms for a friendly
takeover.
 Grey knight- A grey knight is an acquiring company
that enters a bid for a hostile takeover in addition to
the target firm and first bidder
 Yellow knight- A yellow knight is a company that
initiated a hostile takeover, but changes tactics during
the process to negotiate on more agreeable terms.
 Black knight- Black knights attempt hostile takeovers
of target firms.
 Leveraged recapitalization- In corporate finance , a
leveraged recapitalization is a change of the capital
structure of a company- a substitution of equity for
debt. Leveraged recapitalization are used by privately
held companies as a means of refinancing, generally
to provide cash to the share holders while not
requiring a total sale of the company.
 Lobster trap- A lobster trap, in corporate finance, is
an anti-takeover strategy used by target firms. The
term derives from the fact that Lobster traps are
designed to catch large lobster but allow small
lobsters to escape.
 Lock-up provision- Lock-up provision is a term used
in corporate finance which refers to the option
granted by a seller to a buyer to purchase a target
company’s stock as a prelude to a takeover.
 Nancy-Reagan Defense- The Nancy Reagan defense
is a tactic in corporate finance used to counter a
takeover or merger bidder who has made a formal bid
to shareholders to buy their shares.
 Non-voting stock- Non voting stock is a stock that
provides the shareholder very little or no vote on
corporate matters, such as election of the board of
directors or mergers.
 Pac-Man Defense- The Pac –Man Defense is a
defensive option to stave off a hostile takeover in
which a company that is threatened with a hostile
takeover’ turns the tables” by attempting to acquire
its would-be buyer.
 Pension Parachute- A pension parachute is a form of
poison pill that prevents the raiding firm of hostile
takeover from utilizing the pension assets to finance
the acquisition.
 People Pill- As a variation of the poison pill defense,
the people pill is an anti-takeover defense under
which the current management team of the target
company threatens to quit en masses in the event of a
successful hostile takeover.
 Poison pill – A shareholder rights plan, colloquially
known as :poison pill”, is a type of defensive tactic
used by a corporation’s board of directors against a
takeover. The poison pill was invented by mergers
and acquisitions lawyer Martin Lipton of Wachtell,
Lipton, Rosen & Katz in 1982, as a response to
tender- based hostile takeovers.
 Preferred stock plan;
 Flip over rights plan;
 Ownership flip
 Squeeze out is a term referring to the compulsory
acquisitions of the stakes of a small group of
shareholders from a joint stock company by means of
cash compensation.