Abstract
Take-overs of companies are being increasingly used as a means of business growth. Take-over candidates are decreasing and acquiring companies are becoming more aggressive in pursuing take-overs. The target companies have retaliated by using several new techniques to avoid hostile take-overs. Anti-take-over amendments to the company's Memorandum and Articles of association, 'golden parachute' arrangements, and the simultaneous bid for the acquiring company are being extensively used to defend hostile take-overs. The controversial nature of these new strategies has provoked heated academic debate as well as emotional arguments between business managers and shareholders. The high cost of implementing the new strategies to defend take-overs has generated much adverse publicity in the United States. By contrast these new techniques have not found widespread use in South Africa. It can be expected that at some stage in the future these techniques will be implemented by the target companies in South Africa. The public policy implications of using these techniques are discussed in this article. The need to provide guide-lines on the use of new strategies to defend hostile take-overs is recommended. The listed companies in South Africa are instrumental in undertaking major take-overs resulting in increased business concentration. It is recommended that the Johannesburg Stock Exchange should provide guidelines on acceptable methods to defend hostile take-overs.
Highlights
In the past target companies have used several techniques to defend hostile take-overs
The target company could arrange that another company come to its rescue by effecting a 'friendly take-over'
The target company could appeal to its shareholders to reject the take-over offer
Summary
In the past target companies have used several techniques to defend hostile take-overs. Anti-take-over amendments have at least two salutory effects They strengthen the hand of incumbent management in dealing with acquirors whose primary objective is to acquire the assets of the target company at an unreasonably low price. According to the advocates of antitake-over amendments the introduction of such amendments will have a positive impact on the company's share price because it reduces the probability that the acquiror will gain control of the firm's assets without adequately compensating the target company's shareholders. A removal of anti-take-over amendments implies equal or excess valuation of a f1rm's shares and a downward movement in market valuation can be expected Another arrangement intended to curb hostile take-overs is to provide some financial protection to key members of the management team in the event of a possible take-over. Increased shareholder resistance will have to be considered in future contracts protecting managers in take-over situations
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