Professional Documents
Culture Documents
Diyar
Saltanat
Meruyert
Dina
1
Case Background
1984. Greenmail – Hostile takeover attempt
by Steinberg
Takeover is unacceptable
“Poison Pill” taken by Disney: Arvida Corp.
Tender for Disney Stock: $67.50 with
Gibson, $72.50 without it
Two options for Disney:
Fight
against takeover in court
Repurchase the stock
2
Profitability Indicators
30% Gross Profit Margin
Operating Profit
20%
Margin
ROE
0%
1979 1980 1981 1982 1983
3
Liquidity Assessment
Current Ratio
4.50
4.04
3.48
3.00
2.52
1.50
1.11
- 0.14
1979 1980 1981 1982 1983
41%
39%
28%
25%
20% 20%
0%
1979 1980 1981 1982 1983
100
50 48 57
50 35
20
0
-34
-50 1981 1982 1983
6
What Happens to EPS?
EPS components, $
5.00
2.00
1.00
-
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983
7
Stock Price Determination
8
First option: purchase first
Try to inflate the price of shares by buying
them back on the market
Blended tender price =>
Market price goes up
Blended price should be substantially
higher than the bid price (of $67.50 or
$72.50)
• Time value of money
• Market inherent risks
Notrealizable in our case because of the
amounts involved
9
Option two: repurchase from
Steinberg
The regulations set the repurchase price
ceiling as average price for 30 days
before the greenmail.
(S.1323 amending section 14d of the Securities Exchange Act of 1934)
•We can assume the average price for last
month from the Exhibit 14: $62
•That’s definitely not enough to attract Steinberg
•We need to give some premium above the
price he paid
10
Determination of
Repurchase price
The dividend growth model provides no meaningful numbers,
have to use another approach
The M&A theory suggests to pay a premium during takeovers
to buyback the shares that should be sufficient to
Cover all transaction costs of the raider
Provide him with his expected rate of return
In a real life circumstances these is determined during the
negotiations. For now, we can assume these numbers to be
$0.50 per share of transaction costs, and a 2-3% rate of return
on this transaction (not annual).
The repurchase price would be $69.35-$70.03 with Gibson
and $74.45-$75.18 without it.
11
Who’s Fault: Ron Miller?
13
Ethics of Greenmail
Disadvantages
Discriminatory Payment
Triumph of Certain Agents’ self-interest
Transfer Effect
“We are weak”
Advantages
The stress situation
that may lead to higher
economic efficiency
14
Recommendations
Keep focus on Strategic Business Units
Drop the Real Estate segment
Use available proceeds for development of Film
entertainment and Television
• Attract more professional staff in this industry
Change the management of the company
Change dividend policy => retain more capital
for company’s future growth
Insure the future possible takeover attempts
15
Thank You for
Listening!
16