Hostile Takeover Attempts Research Articles

The collective security dilemma of preemptive strikes

Players who are targets of potential raids can sometimes preempt some of these raids and neutralize the raiders. These threatened players have different values to the attackers as raid targets, and they act independently of each other and sometimes sequentially. The order in which the threatened players make their neutralization decisions turns out to be critical to the number of raids and the resulting probability of being attacked. The lowest number of raids results when the threatened players act in ascending order of attractiveness as targets for preemptive strikes. The analysis characterizes game-theoretic equilibrium as a function of action sequencing. It also discusses variations in the game situation, such as if the same threatened player can make multiple preemptive strikes, or if threatened players all act simultaneously rather than in a sequential order. The results are relevant in many contexts, including cybercrime, military threats from revisionist states, international terrorism, sabotage among employees in firms and other organizations, and defense of corporations against hostile takeover attempts.

Study on the Anti-Takeover Defence Strategies Used by the Corporates at the Time of Mergers & Acquisitions

Mergers and acquisitions (M&A) have become a common strategy for companies looking to grow and expand their operations. However, the potential benefits of M&A can also attract unwanted attention from potential acquirers, which can lead to hostile takeover attempts. To protect themselves from hostile takeovers, companies often implement anti-takeover defense strategies. Anti-takeover defense strategies refer to a range of defensive tactics that target companies can employ to deter or prevent hostile takeovers. These strategies can take various forms, including structural defenses, governance defenses, and financial defenses.
 This research paper examines anti-takeover defense strategies in mergers and acquisitions (M&A) using secondary data sources. The paper provides an overview of the various types of anti-takeover defense strategies that are commonly used by companies, including structural, governance, and financial defenses. The paper also analyzes the various anti-takeover defense strategies adopted in protecting shareholder value and limiting competition. The regulatory frameworks governing anti-takeover defense strategies in different jurisdictions are also explored, including the United States, United Kingdom, European Union, and Japan.
 The findings of this study indicate that the use of anti-takeover defense strategies can be effective in protecting shareholder value, but may also limit competition and potentially result in lower acquisition premiums. The paper concludes by discussing the implications of these findings for companies involved in M&A transactions, and the need to balance the protection of shareholder interests with the potential benefits of being an attractive target for acquisition.
 Overall, this research provides a comprehensive analysis of the complex landscape of anti-takeover defense strategies in M&A transactions, based on secondary data sources. The findings of this study contribute to the understanding of the role of anti-takeover defense strategies in M&A transactions and the considerations that must be taken into account by companies when implementing these strategies.

The economics of prepackaged bankruptcy

The economics of prepackaged bankruptcy

Stock price crash risk and the adoption of poison pills: evidence from Brazil

PurposeThe purpose of this paper is to examine the effect of stock price crash risk on the adoption of poison pills.Design/methodology/approachThe authors estimate logit and probit regressions. Their sample includes 185 Brazilian public firms for the period 2010–2018. Following previous studies, the authors use the negative skewness of firm-specific weekly returns and the down-to-up volatility of firm-specific weekly returns as measures of firm's stock price crash risk. As proxies of poison pills, the authors employ the “conventional” poison pills in their baseline models and the “eternity” poison pills, which prevent the removal of poison pills from bylaws, in additional models.FindingsThe authors find that stock price crash risk measures are not associated with poison pill adoption. However, although stock price crash risk does not lead to poison pill adoption as a complementary corporate governance mechanism that protects firms against hostile takeover attempts, further results show that managers do not draw on stock price crash risk as a pretext to entrench themselves. Additional analyses also highlight that CEO power seems to play a role in moderating the relationship between stock price crash risk and eternity poison pill adoption.Originality/valueThe authors contribute to the literature on stock price crash risk, which calls for research in international contexts to better understand the effect of stock price crash risk on country-specific idiosyncratic features. The authors discuss a controversial anti-takeover mechanism that has been debated by Brazilian policymakers.

Hostile Takeovers: Desirable or Dangerous? A Survey Study into the Circumstances Under Which Hostile Takeovers in the Netherlands Are (Un)Permissible

Abstract A number of recent hostile takeover attempts in The Netherlands have triggered the discussion in the Netherlands on the circumstances under which protection of the target company against a hostile takeover should be justified or not be justified. To answer this question, 21 experts involved in mergers and acquisitions from various angels on the highest (management) level, were selected to participate in a survey investigation combining open questions and giving scores for submitted factors. The outcomes show that the participants advocate non-protection in case of relatively high performance of the bidding company, new value creating opportunities a non-responsive board of the Target with personal interest of the board, and cash payment for the target. They are in favor of protection in case of takeover attempts that incur personal board benefits of bidder or target, intended debt push down financing, and in case of considerable societal risks and consequences.

Anti-Takeover Provisions and Investment Timing

We show how directors can set the strength of a firm's anti-takeover provisions in order to influence the investment-timing decision of a future empire-building CEO. The prospect of future hostile takeover attempts, which terminate the CEO's control benefits if successful, affects the CEO's willingness to invest in low-value projects. If anti-takeover defenses are too strong then the market for corporate control imposes insufficient discipline on the CEO, who invests too soon. If they are too weak then shareholders incur too many costs due to managerial distraction and the CEO invests too late. Anti-takeover defenses need to be stronger if the target firm's shareholders receive a larger proportion of any increase in firm value caused by a change in management.

The use of poison pills by US firms over the period 1997-2015: what has been their impact on shareholder value

Poison pills are controversial devices for which no common conclusion as to how the market reacts to their adoption exists. This research collates 4,479 poison pill adoption events by US companies over the period 1997-2015. Statistically significant insights and positive abnormal returns were found on the day the poison pill was adopted. It is for this reason that we argue in favour of the shareholder wealth-maximisation hypothesis, stating that poison pills protect shareholders by providing management a superior bargaining position. The shareholders react positively to poison pill adoption, particularly if a hostile takeover attempt is anticipated. Furthermore, shareholders seem to value the protective effect of the device, which both provides management a superior bargaining position and allows the maximal possible bid premium to be negotiated.

The use of poison pills by US firms over the period 1997-2015: what has been their impact on shareholder value

Poison pills are controversial devices for which no common conclusion as to how the market reacts to their adoption exists. This research collates 4,479 poison pill adoption events by US companies over the period 1997-2015. Statistically significant insights and positive abnormal returns were found on the day the poison pill was adopted. It is for this reason that we argue in favour of the shareholder wealth-maximisation hypothesis, stating that poison pills protect shareholders by providing management a superior bargaining position. The shareholders react positively to poison pill adoption, particularly if a hostile takeover attempt is anticipated. Furthermore, shareholders seem to value the protective effect of the device, which both provides management a superior bargaining position and allows the maximal possible bid premium to be negotiated.

Institutional complementarities and corporate governance: The case of hostile takeover attempts

AbstractResearch Question/IssueDo institutions reinforce each other when it comes to shaping the economic and organizational environment? We investigate national institutional complementarities by examining how different types of institutions jointly influence the occurrence of hostile takeover attempts, a practice in corporate governance whose frequency differs across countries. We distinguish among regulative, normative, and cultural‐cognitive institutions and examine how they interact to influence the occurrence of hostile takeover attempts worldwide.Research Findings/InsightsUsing panel data on hostile takeover activity of 45 countries between 1988 and 2016, we find evidence supporting the impact of institutions individually and of institutional complementarities.Theoretical/Academic ImplicationsThis study shows that important corporate governance practices such as hostile takeover attempts are indeed influenced by different aspects of institutional environment. It thus helps us better understand the effectiveness of corporate governance practice across different countries.Practitioner/Policy ImplicationsThis study sheds new light on policies facilitating certain corporate governance practice such as hostile takeovers. It also provides managers with a tool to analyze the prevalence of hostile takeovers in a country.

An anti-takeover strategy by limitation of voting rights: A model and a numerical approach

This study develops a new trade-off view of corporate governance from an examination of rules that limit voting rights as a defensive measure against a hostile takeover attempt. The theoretical framework concerns a listed company, the capital of which is mainly detained by atomistic shareholders and the power of which is in the hands of a minority shareholders, the hard core. The latter wants to block any hostile takeover and constructs a device based on two parameters allowing it to act on the limitation of the voting rights: a threshold and a scale-down coefficient.

Duties of Corporate Authorities in the Context of Takeover Attempts

This paper analyzes the duties of a corporate board in the context of takeover attempts in Polish law. The closed corporate governance model, that has dominated the Polish market, resulted in a rather insignificant role that civil liability for failure to meet duties by the public company's board played in Polish case law. In the case of the Polish capital market, most takeovers are ‘friendly’ in nature due to a control exercised over Polish public companies by strategic investors. When it comes to the adoption of reactive defense measures by a company's board faced with a threat of a hostile takeover, Polish law remains relatively permissive. Polish company law does not reserve defense measures to the exclusive competence of the general meeting. At the same time the duties of a corporate board in this area are limited and their private law enforcement remains very poor. It does not however mean that a corporate board enjoy unrestrained freedom in this respect. The discussion below will focus on the basic rules of procedure followed by a corporate board facing a hostile takeover attempt.

Multiple Audiences as Text Stakeholders: A Conceptual Framework for Analyzing Complex Rhetorical Situations

In public communication contexts, such as when a company announces the proposal for an important organizational change, argumentation typically involves multiple audiences, rather than a single and homogenous group, let alone an individual interlocutor. In such cases, an exhaustive and precise characterization of the audience structure is crucial both for the arguer, who needs to design an effective argumentative strategy, and for the external analyst, who aims at reconstructing such a strategic discourse. While the peculiar relevance of multiple audience is often emphasized in the argumentation literature and in rhetorical studies, proposals for modelling multi-audience argumentative situations remain scarce and unsystematic. To address this gap, we propose an analytical framework which integrates three conceptual constructs: (1) Rigotti and Rocci’s notion of communicative activity type, understood as the implementation of an interaction scheme into a piece of institutional reality, named interaction field; (2) the stakeholder concept, originally developed in strategic management and public relations studies to refer to any actor who affects and/or is affected by the organizational actions and who, accordingly, carries an interest in them; (3) the concept of participant role as it emerges from Goffman’s theory of conversation analysis and related linguistic and media studies. From this integration, we derive the notion of text stakeholder for referring to any organizational actor whose interest (stake) becomes an argumentative issue which the organizational text must account for in order to effectively achieve its communicative aim. The text stakeholder notion enables a more comprehensive reconstruction and characterization of multiple audience by eliciting the relevant participants staged in a text and identifying, for each of them, the interactional role they have, the peculiar interest they bear and the related argumentative issue they create. Considering as an illustrative case the defense document issued by a corporation against a hostile takeover attempt made by another corporation, we show how this framework can support the analysis of strategic maneuvering by better defining the audience demand and, so, better explaining how real arguers design and adapt their topical and presentational choices.

External Corporate Governance and Strategic Investment Behaviors of Target CEOs

Hostile takeover attempts are considered a key external governance mechanism aimed at addressing perceived managerial underperformance in a target firm. Studies show that target chief executive officers (CEOs) are usually dismissed shortly after a takeover attempt, regardless of whether the bidder actually completes the acquisition. Yet, little is known about the investment behaviors of target CEOs who actually retain their positions in the wake of an unsuccessful hostile takeover attempt. Engaging with this underexplored governance context, we advance a behaviorally informed model of CEO investment behaviors in response to external governance as a function of the negative performance feedback event of the takeover attempt and the timing of the market’s attempt in terms of the stage of the target CEO’s tenure. Based on a matched-pair study of 71 failed takeover attempts from 1995 to 2006, we find evidence of a nonlinear relation between target CEO tenure and degree of uncertainty of expected returns in subsequent strategic investments in the wake of a failed hostile takeover attempt. We discuss the implications for research on external governance, behavioral agency, and executives’ influences on firm processes and outcomes.

Economic Crisis and Share Price Unpredictability: Reasons and Implications

During the recent financial crisis, there was a dramatic spike, across all industries, in the volatility of individual firm share prices after adjustment for movements in the market as a whole. In this Article, we demonstrate that a similar spike has occurred with each major downturn in the economy since the 1920s. The existence of this long history of crisis-induced spikes has not been previously recognized. The Article evaluates a number of potential explanations for these recurrent spikes in firm-specific price volatility, a pattern that poses a puzzle in terms of existing financial theory. The most convincing explanations relate to reasons why information specifically concerning individual firms would become more important in difficult economic times. This discovery of a long history of crisis-induced spikes in firm-specific price volatility has important implications for several areas of corporate and securities law. With regard to securities law, the Article concludes, for example, that because of these spikes, private damages actions are much less effective deterrents to corporate misstatements and insider trading in crisis times than in normal times. Consequently, substantial additional resources should be devoted to SEC enforcement actions during crisis times. The Article considers as well the most contentious corporate law issue of the last 30 years: the extent to which a target board of directors will be allowed to prevent shareholders from accepting a hostile takeover bid at a premium over the pre-bid share price. The Delaware Supreme Court’s approach to this question has been largely based on the difficult-to-define concept of “substantive coercion.” The Article concludes that these spikes could be a way of giving real meaning to the “substantive coercion” justification for board approval of defenses against hostile takeover attempts, but that the instances where this justification is appropriate will be rare.

How Do Industry Peers Respond to Control Threats?

This paper studies how industry peers respond when another firm in the industry is the subject of a hostile takeover attempt. The industry peers cut their capital spending, free cash flows, and cash holdings, and increase their leverage and payouts to shareholders. They also adopt more takeover defenses. The stock price reaction upon announcement of the takeover is positive and larger for peer firms with higher capital spending and higher free cash flows. Before the takeover attempt, the peer firms borrow less and invest more than predicted. Both stock returns and performance improve after the takeover attempt. These results are consistent with the argument that the control threat has important spillover effects for the other firms in the industry. This paper was accepted by Wei Xiong, finance.

The role of executives in hostile takeover attempts

This paper proposes a two-stage game theoretic model where the discretionary power of executives acts as an implicit defense against hostile takeovers. Following managerial enterprise models, this paper analyzes the effects of discretionary power of target’s executives over R&D and advertising expenditures in defeating hostile takeover attempts. It is shown that in vertically differentiated industries, in equilibrium, target’s executives keep low level of R&D and advertising expenditures to make their firm an unattractive target for hostile takeovers. The model reveals that executives are influenced by their self-interest of monetary and non-monetary benefits and this self-interest makes the industry more differentiated.

A Comparative Analysis of Hostile Takeover Regimes in the US, UK and Japan (with Implications for Emerging Markets)

In each of the three largest economies with dispersed ownership of public companies - the United States, the United Kingdom, and Japan - hostile takeovers emerged under a common set of circumstances. Yet the national regulatory responses to these new market developments diverged substantially. In the United States, the Delaware judiciary became the principal source and enforcer of rules on hostile takeovers. These rules give substantial discretion to target company boards in responding to unsolicited bids. In the UK, by contrast, a private body consisting of market professionals was formed to adopt and enforce the rules on hostile bids and defenses. In contrast to those of the US, the UK rules give the shareholders primary decision making authority in responding to hostile takeover attempts. The hostile takeover regime in Japan, which developed recently and is still evolving, combines substantive rules with elements drawn from both the US (Delaware) and the UK, while adding distinctive elements, including an independent enforcement role for Japan’s stock exchange. This Article provides an analytical framework for business law development to explain the diversity in hostile takeover regimes in these three countries. The framework focuses on the universal supply and demand dynamics that drive the evolution of business law in response to new market developments. It emphasizes the common role of subordinate lawmakers in filling the vacuum left by legislative inaction, and it highlights the prevalence of “preemptive lawmaking” to avoid legislation that may be contrary to the interests of important corporate governance players. Extrapolating from the analysis of developed economies, the framework also illuminates the current state and future trajectory of hostile takeover regulation in the important emerging markets of China, India, and Brazil, where corporate ownership structures may be changing. An important pattern revealed by the analysis is the ostensible adoption - and adaptation - of “best practices” for hostile takeover regulation derived from Delaware and the UK in ways that protect important interests within each emerging market’s national corporate governance system.

Hostile Takeovers in Korea: Turning Point or Sticking Point in Policy Direction?

Mergers and acquisitions are burgeoning in Korea after the involuntary restructuring of major conglomerates and financial institutions which occurred after the 1997 financial crisis. Many companies owned by government agencies are likely to be privatised in the coming years and the current administration aims to sell utilities and infrastructurep rojects to the private sector. Policies for certain government-owned financial institutions are currently being questioned as well. Despite the temporary crunch of capital markets in Korea, mergers and acquisitions will be at the core of Korean economic activities in the next decade.Amidst these developments, however, some have voiced concern about hostile takeover attempts, especially by foreign capital. The past and current regulation of hostile takeovers has been weighed down by securities regulations and corporate laws. Arguments for poison pills are being regurgitated in light ofeconomic reality, which is that there is no separation between management and ownership. This paper argues that such concerns are not relevant to the Korean economy and there is no need for further changes intended to discourage hostile takeover attempts.

CF FINALLY WINS TERRA

CF INDUSTRIES’ play for rival fertilizer maker Terra Industries—begun as a hostile takeover attempt some 14 months ago—has ended with an agreement to merge. CF finally prevailed with a sweetened ca...

Euro Takeover! 2005 (E) Omnibank/Omnigroup Plc

This exercise simulates a hostile takeover attempt. The target is an underperforming conglomerate with two principal business segments: consumer foods and specialty chemicals. The raider company has a history of hostile action, usually profiting from greenmail or the bust-up liquidation of the unfortunate target. Two other bidding parties are present: a white knight firm, which has had amicable relations with the target in the past and considers making a friendly bid for the target, and an LBO firm which has ample equity and lines of credit with which to finance a buyout. Finally, the instructor has the option to include two banks who can impose some restraint on possible deal frenzy. The exercise organizes students into teams representing the four companies, who must negotiate an outcome to the episode most advantageous to their own firms. The parties are motivated to take action, because the expiration of the Raider’s tender offer will occur soon, at which time, if there is no higher offer outstanding, the arbitrageurs will tender their shares and the Raider will seize control. All parties know that the Target Company’s board of directors is meeting in a few hours in an effort to settle on a course of action. This exercise is ideally suited to a) exercise students’ valuation and negotiation skills, b) train students in the unusual dynamics of hostile takeovers, and c) develop an understanding of some fundamental points of corporate governance, including the responsibility of a board of directors and the agency problems that can arise when managers’ jobs are threatened.