class 5 powerpoint Flashcards
A causal pass
occurs prior to any hostile takeover
the bidder may attempt some informal offer to the target firm’s management
A toehold
a purchase of an initial accumulation of the target firm’s shares by a hostile bidder
leads to lower average cost of acquisition, and a dual role
A value leakage
hostile bidders should see whether the target firm has important contracts that could be lost following the acquisition
(i.e., lower value and lower bid)
when could a value leakage take place?
could take place due to information asymmetry
A fiduciary out clause
exists in merger agreements whereby a bidder and a target firm seek to pursue a friendly agreement
the latter’s board is required to still consider other bids so as to ensure shareholder wealth maximization
The optimal bid
when the initial bidder structures its first bid so as to discourage other bids while not overpaying
The premium offer stemming from single bidder is relatively higher or lower that the one offered by an initial bidder in a takeover contest involving multiple bidders?
The premium offer stemming from single bidder is relatively higher
A bear hug
takes place when a bidder contacts the board of the target firm with an expression of interest in acquiring that firm
the bidder tends to reach the shareholders with a tender offer if the overtures are not effective
less expensive takeover tool
two kinds of bear hugs
A teddy bear hug
more aggressive bear hug
A teddy bear hug
does not encompass a price or specific deal terms (i.e., less threatening)
more aggressive bear hug
the bidder offers a specific price so as to determine a specific range for damages in potential shareholder lawsuits
A long-form merger
a statutory merger that requires the target firm’s shareholders approval of the deal
A short-form merger
occurs if the bidder acquires 90%+ (e.g., Delaware)
the remaining shareholders receive the same compensation the others received, and no voting is necessary
A two-step tender offer
starts with the first step as the tender offer, while the second one is a short- or long-form merger (ownership level dictates)
which is usually quicker between a tender offer and a long-form merger?
a tender offer
Reasons that motivate a tender offer
A faster deal completion than other alternatives
The bidder may be able to circumvent unfavourable management and board
While a tender offer could trigger an auction process and by extension increase its transaction cost, it could increase returns to shareholders
how can tender offers be paid?
An all-cash offer
An exchange offer stands for the use of the bidder’s own shares (attractive as it could be considered tax-free to target shareholders)
A double-barreled offer occurs when target shareholders have a choice: cash or securities
Response of the Target Management to tender offers
Schedule 14D-9
Recommend acceptance
Recommend rejection
State that it has no opinion and is neutral
State that it cannot take a position on the bid
Considerations about resisting a bid
A winner’s curse could yield value to target shareholders
The original bidder could simply withdraw its bid
A potentially treacherous move, since a target firm may receive an increased offer that is better than the gains that shareholders could enjoy: resistance could erode firm value
A winner’s curse
i.e., flocking in competing bids, which ultimately increases premiums
Investment bank
provides the requisite financing and advisory service through the tender offer
Legal advisors
savvy attorneys on tactics and defences employed to fend off tender offers
Information agent
a proxy soliciting firm in charge of forwarding tender offer materials to shareholders
Depository bank
handles the receipt of the tender offers and the payment for the shares
