#6- Ch. 6- Takeover tactics Flashcards
What are typical tactics for mergers?
Bear hugs / bypass offers,
Tender offers,
Proxy fights,
Streetsweep,
Creeping tender offer, Toehold or casual pass
Only considered a ‘hostile takeover’ if target directors vote against it.
What factors influence the choice of tactic in a merger?
- Attitude of target management and board
- Distribution of voting power
- Strength of target’s defenses in place
- Presence of competing offers and/or a white knight
What is a Casual Pass in merger tactics?
A friendly overture prior to initiating a hostile bid that may backfire by giving advance warning to the target.
What is the purpose of establishing a toehold in a merger?
May lower the average cost of the takeover and give leverage with target management.
Why don’t bidders maximize toeholds?
Risk of holding shares if the bid is unsuccessful, alerting target management, and appearing unfriendly.
What is a Bear Hug in the context of mergers?
Bidder brings offer directly to target’s directors and/or management, often threatening a hostile bid.
What is an example of a Bear Hug?
AIG’s competitive bid for American General Insurance in April 2001.
What are Two-Tiered Tender Offers?
Offers that courts have found illegal due to the best price rule and fair price provisions.
What is a Creeping Tender Offer?
Repeated purchases of shares by a party which may lead to a tender offer, requiring a 13D filing.
What is the purpose of Street Sweeps in merger tactics?
To acquire large holdings of stock after a canceled tender offer, keeping the target ‘in play’.
What are the main types of Proxy Fights?
- Contests for seats on the board of directors
- Contests about management proposals
- Anti-takeover amendments
What characteristics increase the likelihood of Proxy Fight success?
- Management has insufficient voting support
- Poor operating performance
- Sound alternative operating plan
What are the costs associated with Proxy Fights?
- Professional fees (proxy solicitors, attorneys)
- Printing, mailing, and communications costs
- Litigation costs
- Miscellaneous fees
What trend is observed in Proxy Contests?
Management and boards are more willing to make concessions to insurgents.
What is Riskless Arbitrage?
Buying and selling the same asset in different markets at different prices.
What is the role of Arbitragers in M&A?
They acquire shares to profit from the difference between purchase price and closing price with its premium.
What is the equation for Risk Arbitrage Return (RAR)?
RAR = GSS/I x (365/IP)
Where GSS = gross stock spread, I = investment by arbitrager, IP = investment period.
What sources of risk are present in Risk Arbitrage?
- Deal may be canceled
- Regulatory/Anti-trust approval may not be secured
- Material Adverse Change clause may be activated
What is a collar in merger consideration analysis?
A way to hedge against uncertainty about the value of the buyer and/or target.
What is a Fixed Exchange Ratio Deal?
A deal where the number of shares is fixed, leading to uncertainty in the deal’s value based on buyer’s share price fluctuations.
What is a Fixed Value Deal?
A deal with certainty about the value to be paid but uncertainty about the number of shares to be issued.
What is a Floating Collar in merger consideration?
A solution that limits downside losses and caps upside gains within a reasonable range.
What is a Fixed Collar in merger consideration?
A stipulation that gains and losses must be shared by both target and buyer beyond a reasonable range.
What is a bear hug in takeover tactics?
An offer made directly to target directors with an implied threat of a hostile takeover.
