Change management in multinational

corporations

Lecture 10
 Reasons why the managers can refuse a
takeover offer
The price does not reflect the real value of the company;

The offer is made ​at a improper time due to future

improvement forecasts;

The acquisition contravenes various antitrust provisions;

The acquisition will have a negative effect on staff and

economic environment;

There is belief that the takeover does not occur for the purpose
of combining the companies, but financial purposes;
 Corporate defense

Preventive defenses

‘Gray‘ strategies

Defensive measures
 Preemptive Strategies

Discourage any unwanted bids.

Measures to maintain a high share price

Measures for identifying shareholders

 General measures

Holding its own company shares either directly or

more often indirectly through subsidiaries.

Establishment of “allied shareholdings” involving

that shares are entrusted to reliable shareholders
(with participation of 2-5%), committed not to
sell shares for a certain period of time

“Unlisted holdings waterfalls", formed and

managed by the group of major shareholders
represented on the Board.
 General measures

Dissociation of voting rights attached

to the shares

“Blank check" which consists of the

issue of preferential shares to trusty
shareholders whose voting rights may
be multiple.
 Measures to maintain a
high share price
Focus management efforts on removing the
reasons that cause the initiation of
takeovers

Cultivate a good image of the company which

involves promoting cordial relations with
shareholders, the market and the media

Updating and expanding the range of

information
 Measures to maintain a high
share price

Public Notices
 Avoiding to provide only compulsory notices
 Offer market estimates
 Never Late Notice

Making steady profits and dividends.

 Measures for identifying
shareholders

Maintain updated registers of shareholders

Identification of nominees

Mandatory notification of identity at the time

exceeded a certain percentage of the firm's
capital

Radar alarms - requires careful monitoring of share

trends to detect in time any intention of takeover
 ‘Gray' strategies

Poisson pills

Other contractual obstacles

Procedural obstacles

Pacts with shareholders

 The "poison pill"

Flip-over the company entitles shareholders to buy newly

issues shares or convertible bonds into shares in the
company. Typically, these rights may be exercised only
after a third party has obtained a certain percentage of
the shares.

Flip in - target firm shareholders are allowed to buy Raider

shares
 Other contractual obstacles

“Poison” clauses in bonds - ordinary

convertible bonds may contain a clause
that can be readily convertible or
redeemable in shares at par value upon
a change of control of the issuing
company

“Poison" clauses in licensing agreements

allow for termination in case of change
of corporate control
 Procedural obstacles

"Golden parachute" - a clause which states that

managers will charge a certain amount of
money in case of takeover

“Silver parachute” and "tin parachute"

 Procedural obstacles

Staggered Board of Directors - states that

only a small number of directors may be
renewed annually

Super-majority clause - a firm may adopt

an amendment stating that to achieve
an acquisition or merger would require
the vote of a greater number of
shareholders (60-80%) than a simple
majority.
 Pacts with shareholders
“white squires” are shareholders of other
companies, financial institutions which own a
stake to support the existing management

voting pacts are agreements between members of

the same family are either common interests
between shareholders, which gives one of them
the right to vote for all

cross-shareholdings is achieved when two or more

firms have substantial package of shares in one
another.
 Defensive measures
“Fat man” defense, which consists in the
acquisition of assets to gain value

reach a size that is in conflict with

antitrust laws

use of financial assets attractive to

raider
 Gaining “weight” quickly

raise equity participation before the

start of the offer.

merger between the company and its

main subsidiaries

increase debt
 Other defensive measures
"white knight" finding an alternate buyer favourable for the
current management

"crown jewels“ involves the liquidation of the asset which is

presumed to be the real target of the acquisition
or
through a spin-off - implies that the target firm may
choose to transfer ownership of an asset to another
company hence, the raider has to buy both stakes
 Other defensive measures

"scorched earth" is to quickly liquidate

valuable assets of the company to reduce
interest

“greenmail” expensive method that requires

redemption of shares owned by target,
often with a substantial premium from a
raider, who owns a significant stake in the
capital of a company, and threatens to
launch a public offer
Communication war centered on the target
company

Presentation of future profits and

dividends

Revaluation of assets

Projections of the positive business

development company  
Communication war centered on the raider
Challenge the value of the tender launched
by invader

Arguments concerning the time of the offer

and commercial reasons

Personal attacks:
"enemy alien"
bribery attempt
accusations of racism