Tender offer: 8 factor test:

i. Active and widespread solicitation of public

shareholders for the shares of an issuer
ii. Solicitation made for a substantial percentage
of the issuer’s stock
iii. Offer to purchase made at a premium over the
prevailing market price
iv. Terms of the offer are firm rather than
negotiable
v. Offer contingent on the tender of a fixed
number of shares, often subject to a fixed
maximum number to be purchased
 vi. Offer open only for a limited period of time
vii. Offeree subjected to pressure to sell his stock
viii. Public announcements of a purchasing
program concerning the target company precede
or accompany rapid accumulation of large
amounts of the target company’s securities.
Bidding process under US law:
Shareholders may wait out the bid until the last
minute without prejudice. Whether the offer is for
any and all shares tendered or only for some of the
shares, it must remain open for 20 business days.
Shares that are tended may be withdrawn at
any time during the offer which gives the target about a
month to come up with a better alternative. A new offer, or an
increase in the price of the original offer, will extend the
duration of the offer and the withdrawn period by 10 business
days. If the offer is for less than all the shares, acceptance
must be on a pro-rata basis, not first-come, first-served. An
increase in the offer must apply retroactively. But even
though the rules allow shareholders to take their time and
change their minds, most sell unless a better deal is presented
because they realize that if they do not, the market after the
offer is likely to be inactive and the stock’s price is likely to
retreat to pro-offer levels. Many will not even wait for the
offer period to end. Rather, they sell their shares soon after
the offer is made, pocketing a sure profit rather than waiting
to see if the offer succeeds.
During this opening period of tender offer the
arbitrageurs (Arbs), brokers and professional risk
takers, owned large amount of shares of the bidder
with a hope of selling them in high price.
Ultimately, the tender offer will run its course.
Several possible outcomes may exist-
The bidder may succeed on approximately the
terms originally offered
The target may have agreed to be acquired by a
suitor of its choice, a ‘white knight’.
The target’s management may make a competing
bid or may propose a financial restructuring,
usually with the target financing a substantial
borrowed funds.
 The bidder and the target may reach a
compromise, perhaps compelled by the strength
of the target’s defenses, whereby the bidder
increases the price it is offering and,
sometimes, provides some job security to the
target’s management
 The target will be able to thwart the bid entirely
on some legal objection, or through its internal
defenses, and remain largely intact.
Procedural requirement for bidding:
 At the moment of bidding at least 5% of total
 no pre-offer filing requirement is necessary
 call for information required by specific form of SEC
 description of the bidder purpose and plan for the target
 certain financial information about the bidder (e.g., who are
loan provider Bank or who are investor Banks)
 US Security law makes it unlawful ‘for any person to make
any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements
made, in the light of the circumstances under which they
are made, not misleading, or to engage in any fraudulent,
deceptive, or manipulative acts or practices, in connection
with any tender offer or request or invitation for tenders, or
any solicitation of security holders in opposition to or in
favor of any such offer, request or invitation.’
Defensive tactics:
Poison pills: a rights plan grants to each
shareholders a dividend upon condition to
purchase stock or other securities at any time
within a long time period (10 years). But the right
is not exercisable until a triggering event occurs, it
has little present value to the holders and the board
(target) retains the power to redeem the rights for a
nominal payment.
Flip-over poison pills: here the target company
allows own shareholders to purchase shares of the
bidder’s stock at half-price if the bidder merges
with the target after the tender offer.
Flip-in poison pills: it allows a rights holder, other than the
bidder, to purchase stock or other securities of the target at a
below market price. When such rights are exercised, the
overall cost of the takeover is raised to an uneconomic level.
Amendment of corporate machinery: a supermajority
voting requirement through amendment of trigger’s
memorandum may state that all mergers be approved by 80%
of the shares.
Corporate restructuring: the target will borrow much of the
money it needs, sell non-essential assets and attempt to
streamline its business. Management, to survive, will have to
find a way to both service the debt and maintain the viability
of the company’s operation.
Spin-off:
leveraged buyout:
Spin-off: Businesses wishing to streamline their
operations often sell less productive or unrelated
subsidiary businesses as spinoffs. For example, a
company might spin off one of its mature
business units that is experiencing little or no
growth so it can focus on a product or service
with higher growth prospects. The spun-off
companies are expected to be worth more as
independent entities than as parts of a larger
business.
leveraged buyout:
Defensive mergers: a white night defense to target to
search for a more compatible merger partner through an
alternative to restructuring the company.
Problem in white night: a hostile bidder may have
studied the target for months before launching its bid. But
in white night the target may have only a few weeks to find
and conclude an acquisition agreement. The white night,
caught up in the excitement of a battle for corporate control,
may discover that the business it has acquired is not exactly
the business it thought it was buying.
Issuance of stock: issuance of stock to an investor friendly
to management acts as defense against the bidder control.
Greenmail: the willingness of some companies to resolve
take-
Over threats by repurchasing their shares at a
premium made it attractive for entrepreneurial
investors to acquire substantial blocks of stock in
potential targets and then threaten bid in the hope
that the target would offer to repurchase the stock
instead. Such payment is greenmail and investors
who sought them are known as greenmailers.
Golden Parachutes: The target company awards
very favorable employment contract to its senior
management. The employee is either given the
unilateral right to terminate employment and
receive a substantial lump sum payment (‘single
trigger’ parachutes), or if the right is not entirely
is changed (‘double trigger’ parachutes). Awarding
management golden parachutes adds a second
asset to management’ portfolio: the expectation of
a large termination payment which can be realized
only if a takeover actually occurs.