Hostile Takeover Research Articles

Land of the Falling 'Poison' Pill: A Comparative and Empirical Analysis of Japan’s Defensive Measures

Embraced by US managers in the 1980s as a lifeline in a sea of hostile takeovers, the poison pill fundamentally altered the trajectory of American corporate governance. When a hostile takeover wave seemed imminent in Japan in the mid-2000s, Japanese boards appeared to embrace this American invention with equal enthusiasm. Japan’s experience should have been a ringing endorsement for the utility of American corporate governance solutions in foreign jurisdictions – but it was not to be. Japan’s unique interpretation of the “poison pill” that was so eagerly adopted by Japanese companies in the mid- to late-2000s has turned out to be nothing like their potent American namesakes – and, in fact, the opposite of what would be expected by leading US academics who have built a cottage industry publishing on the US poison pill. Based on hand collected empirical data, we provide the first in-depth analysis for why Japan’s “poison pill” (defensive measures) is heading towards extinction – a watershed reversal that is unexplained in the Japanese literature and has almost entirely escaped the English language literature. By drawing on our hand collected data, case studies, and Japanese jurisprudence, we illuminate the unique and untold story of how one of the most discussed mechanisms of American corporate governance has worked almost entirely differently when transplanted to Japanese soil – the importance of which is heightened as Japan is by far the largest economy in which the poison pill has been tested outside of the United States. In addition, our analysis sheds light on the unexpected importance of Japan’s recently implemented corporate governance code and stewardship code – two Western legal transplants that have garnered considerable attention in the English language literature, but which have yet to be evaluated in light of their impact on defensive measures in Japan.

Takeover deterrents and cross partial ownership: The case of golden shares

We analyse takeovers in an industry with bilateral capital‐linked firms in cross partial ownership (CPO). Before merger, CPO reduces the profitability of involved firms, confirming the “outsider effect.” However, the impact of CPO upon merger profitability is two‐sided in a Cournot setting. CPO, by cointegrating profits, increases output collusion leading to anticompetitive effects with facilitated mergers in most cases. Nonetheless, a protective threshold exists for which CPO arrangements can reduce the incentives for hostile takeovers. This has potentially significant regulatory implications. An illustrative example showcases the potential relevance of CPO as a defence against hostile takeovers across different industries.

Development of German and Russian Corporate Law in the Hostile Take- over Environment

Introduction. Speculative behavior is common for modern stock markets. It leads to corporate short-termism and therefore has negative systemic implications for the states’ economies. In an attempt to mitigate this trend, the German lawmaker developed national legislation aiming, inter alia, to provide company management with additional powers it could potentially use to prevent hostile takeovers. This experience needs to be critically studied in terms of both German and Russian doctrine and legal practice.Materials and methods. This paper uses the following general and specifc scientifc methods: structure-function analysis, comparative law method, Aristotelian method, statistical method, historical method, systemic method and hermeneutic method.Results of the research. Reacting towards a number of transactions affecting the German corporate landscape, the German legislature developed the Law on Acquisition of Securities and Change of Corporate Control. This Law contains protectionist provisions potentially entitling the board of directors of a joint-stock company to undertake measures to prevent hostile takeovers either subject to consent of the supervisory board or in cases where it is authorized to do so according to the corporate charter. Nevertheless, the impact these powers have in practice is very limited, which can be mostly attributed to practical considerations of the German judiciary and legislature.Discussion and conclusions. The article contains analysis of the German and Russian legal doctrine and court practice pertaining to joint-stock companies, as well as the scope of authorities of their management, analysis of the basic advantages and disadvantages of the German regulatory approach, conclusions as to applicability of the German approach in Russia.

Idea wspaniałego antropocenu: wrogie przejęcie czy antropodycea?

The idea of the great Anthropocene: Hostile takeover or anthropodicy?The article discusses claims and postulates of the so-called An Ecomodernist Manifesto, signed in 2015 by such intellectuals as Ted Nordhaus, Michael Shellenberger, Ruth de Vries or David W. Keith. Ecomodernists or ecopragmatists, as they liked to be called believe in the possibility of creating the great or at least the good Anthropocene. Their theses are subsequently confronted in the text with a strong critical response articulated in A Degrowth Response to An Ecomodernist Manifesto, published in the same year. The presentation of the discussion is additionally enriched by the analysis of other arguments, invoked by such scholars as an Australian economist Clive Hamilton, an American ecosocialist Ian Angus, an Irish expert of environmental security Simon Dalby and a French sociologist and philosopher Bruno Latour. The aforementioned researchers interpret the ecomodernist idea of the good Anthropocene as un unjustified techno-optimism, as an attempt to hijack the idea of the Anthropocene, as a kind of highly controversial anthropodicy, and as groundless technological or neoliberal optimism upheld by the privileged groups in the developed world.

Mergers and acquisitions in Jordan: Its motives and influence on company financial performance and stock market price

This research paper focuses on recent business trend in Jordan which attracted us as researchers to investigate Merger & Acquisition’s ability to create and realize more value than the parties can alone, and whether the value earned by the merged firms have motivated them to contribute to the combination. The method used to analyze post-merger financial performance was carried out by adopting the accounting return method and the stock price method, which measures and observes the stock market price in terms of market value, earnings per share (EPS), and price earnings ratio (P/E) of the merged firms. Analyzing the annual reports of the two Jordanian banks, the study concluded that the ratio analysis of AJIB and Safwa Bank show different trends after Merger & Acquisition. Our analysis shows decreasing values in the first two years after the acquisition, but gradually increasing values in subsequent years. The study concluded that the fluctuation of results may be attributed to the difficulties in managing the increased volume of assets after the merger as well as to non-financial reasons such as the human behavior of the employee resistance after the acquisition, where the employees of the acquired firm consider merger as a hostile takeover.

L&T's Hostile Takeover of Mindtree: A Value Destructive Transplant

After twenty years of successful running of their company, Mindtree co-promoters had to exit their company as it was acquired by conglomerate L&T. A passive investor in the firm, V G Siddhartha had to sell his 20% stake, to clear heavy debts of his core business. As the promoters of Mindtree were not in a position to raise the finances to buy off his stake, he approached L&T, which bought his shares. L&T went on to acquire additional stake in Mindtree from the open market and from FIs. The three co-promoters in senior positions at Mindtree, along with another co-promoter Subroto Bagchi tried to fend off the unwelcomed acquirer, but in vain. Without a controlling stake in the firm and resources to buy off the largest individual shareholder, Mindtree co-promoters had to exit and face the harsh reality of the new owner L&T being classified as the promoter of the firm. The original promoters of Mindtree had set up and scaled into a global IT services company.

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.

The Case Study of Cross-Shareholding between ZHENYE and CHANGCHENG

The phenomenon of cross-shareholding in China was formed in the 1990s. Domestic and foreign scholars have studied the motives and effects of the formation of cross-shareholding system, but there are few specific case studies, especially the cross-shareholding formed by the government. Therefore, this paper will study the cross-shareholding case. Shenzhen Zhenye (Group) Co., Ltd. (“ZHENYE” for short) and Shenzhen Changcheng Investment Holding Co., Ltd. (“CHANGCHENG” for short) held each other’s shares from 1995 to 2013, which lasted 18 years. This cross-shareholdings relationship promoted by the government brought both positive and negative effects to ZHENYE. This article analyzes the effects to ZHENYE and give suggestions to the cross-shareholdings companies: 1) in order to prevent hostile takeover, the cross-shareholdings companies should consider the percentage of cross-shareholdings or cooperate with more than one company; 2) making an alliance with other companies will benefit the long-term development of the company; 3) cross-shareholdings can be a new way of transformation of the state-owned enterprises.

Piramidalne strukture i društva s uzajamnim udjelima kao oblik odstupanja od načela „jedna dionica – jedan glas“

U dioničkim društvima se ponekad koriste dionice koje daju nejednako pravo glasa, piramidalne strukture i drugi mehanizmi jačanja kontrole, koji predstavljaju odstupanje od načela proporcionalnosti. Uspostavljeni mehanizmi za jačanje i/ili zadržavanje kontrole, u čemu prednjači uporaba piramidalnih struktura relevantni su za situacije u kojima nad uvrštenim društvom dolazi do promjene kontrole (preuzimanje). U radu se nakon izlaganja taksonomije mehanizama za povećanje kontrole, posebna pozornost usmjerava na ona odstupanja od načela proporcionalnosti koja su nastala na tržištu kapitala, a to su piramidalne strukture i društva s uzajamnim udjelima. Prije njihove analize, ispituju se njihovi učinci na ponašanje unutarnjih dionika korporativnog upravljanja u uvrštenim društvima, do kojih dolazi pri dobrovoljnom i neprijateljskom preuzimanju, ali i u scenariju kada preuzimanja nema, vodeći pritom računa radi li se o društvu s disperziranom ili koncentriranom dioničarskom strukturom. Također se iznose i analiziraju empirijski pokazatelji instrumenata za pojačanje kontrole u pojedinim europskim državama. U posljednjem dijelu rada posebno se analiziraju metode izračunavanja glasačke snage kod piramidalnih struktura i društva s uzajamnim udjelima, nakon čega se iznose zaključna razmatranja.

Political Economy and Immigration

In many advanced democracies the major political parties have been disrupted either by the rise of new (populist) parties or by hostile takeovers. There is no shortage of plausible explanations: the incomplete recovery from the Great Recession, the impacts of globalization on local economies, and the rise of immigration may each have important roles. In this paper we argue that immigration attitudes have had a powerful impact on the strategic environment of political parties and leaders. While immigration attitudes may be substantially anchored in broader social attitudes, short run economic forces have played an important role in the recent emergence of immigration as a political issue. We show, based on evidence from a comparative study conducted by YouGov in Spring of 2015, that immigration attitudes had, by that time, driven a wedge between the major parties – those that regularly play a role in government – and their supporters. This “immigration gap” opened up enormous space for new political movements to form, either inside existing parties or outside. We suggest that the potential for this kind of destabilization of existing parties or party systems has probably been present for years and that it is rooted both in effects of the long term movement toward global and regional markets, as well as in the effects of shorter term responses to the Great Recession and its prolonged aftermath.

From balanced enterprise to hostile takeover: how the law forgot about management

AbstractWe show that professional management began to emerge in UK companies during the first half of the twentieth century, a development which was widely theorised and accepted. However, the managerially-led enterprise was accommodated rather than protected by company law, making it vulnerable to changes in the law. The Cohen Report of 1945 paid no attention to these developments, and led to the introduction, in the Companies Act 1948, of important, but previously little appreciated, changes in the name of enhancing the accountability of directors to shareholders. The shareholders’ statutory right to remove the directors by simple majority overturned existing structures overnight and was an important driver of the hostile takeover, which emerged shortly afterwards. This deprived management of the necessary autonomy to balance the competing interests at stake in the enterprise and to foster innovation. The emergence of the current system of shareholder primacy can be traced back to these developments.

Does short-selling threat discipline managers in mergers and acquisitions decisions?

Abstract We explore the governance effect of short-selling threat on mergers and acquisitions (M&A). We use equity lending supply (LS) to proxy for the threat, as short sellers incentives to scrutinize a firm depend on the availability of borrowing shares. Our results show that acquirers with higher LS have higher announcement returns. The effect is stronger when acquirers are more likely to be targets of subsequent hostile takeovers and when their managers wealth is more linked to stock prices. We conduct four sets of tests to mitigate endogeneity concerns. Finally, the governance effect exists only for deals prone to agency problems.

The ability of listed companies to optimize their capital structure, shape their distribution policy and fight hostile takeovers by repurchasing their own shares

The management of listed companies is faced with the decision to distribute the annual surplus to the shareholders in total or to reinvest it in order to achieve the company's goals in order to sustain the continued existence and growth of the company. In order to avoid a conflict of interest between the various parties of a stock corporation, compensation must be found so as not to jeopardize the company's goals and priorities. An optimization of the capital structure and a balanced dividend policy should contribute to the satisfaction of all stakeholders of a company. This article investigates the possiblity by using a share buy-back programm, a kind of capital reduction, as a strategic measures to reach both oft he goals. Sustainability in terms of financial stability should be at the forefront of management and ownership.

Do Staggered Boards Matter for Firm Value?

The authors address, and attempt to settle, the heated debate over the effect of staggered boards on corporate performance. Critics of staggered boards claim they enable the entrenchment of inefficient managements and boards; and by working in tandem with poison pills to discourage hostile takeovers of underperforming companies, such boards end up generally reducing corporate values. Consistent with this theory, some institutional investors and shareholder rights advocates have urged companies to eliminate their staggered boards, while the most extreme critics have gone so far as to call for a regulatory ban. By contrast, supporters of staggered boards argue that they help increase corporate values by allowing managements and boards to focus on long‐term goals, and by providing board members a degree of independence from corporate executives who might want them replaced. The most extreme proponents of staggered boards have proposed that such boards be not only permitted, but indeed mandated.Both sides of the debate claim to be backed by empirical studies whose findings provide sharply conflicting pictures of the consequences of staggered boards. Whereas the earlier studies found that companies with staggered boards have significantly lower values, more recent studies have concluded that staggered boards lead to higher corporate values.The authors show that neither side of the debate has convincing empirical support. The earlier studies failed to account or control for important variables and corporate characteristics that explain corporate decisions to stagger their boards, or for changes in the companies' characteristics over time. For example, to the extent that a company's poor performance drives its decision to adopt or retain a staggered board provision—presumably to give it more freedom to restructure and improve its operations—the association of staggered boards with poor performance ends up confusing cause and effect.When the authors control for variables that affect both corporate values and the choice of staggered boards in a sample of close to 3,000 U.S. companies from 1990 to 2013, they find that the effect of a staggered board on firm value becomes generally insignificant. As the authors put it, “The effect of a staggered board is idiosyncratic; for some firms it increases value, while for other firms it is value destroying.” On the basis of such findings, the authors caution against legal solutions advocating either wholesale adoption or repeal of staggered boards, urging managements and boards to determine the value‐maximizing approach that reflects their own companies' opportunities and circumstances.

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.

The Market for Corporate Control and Information Quality: Evidence from Peer Firm Disclosure Response to Takeover Threat

We examine the voluntary disclosure behavior of peer firms of hostile takeover targets. We find that peer firms under control threat use a disclosure strategy that emphasizes bad news: they provide more bad news forecasts, tend to bundle bad news forecasts with earnings announcements, use more negative tone in conference call presentations, and more evenly distribute negative tonal words throughout the presentation to heighten the visibility of bad news. This asymmetric disclosure of bad news is concentrated in firms whose managers have greater incentives to mitigate control threats – firms with younger CEOs, CEOs with higher total compensation, and firms with weaker anti-takeover provisions. Further tests show that peer firms also manage accruals downward. We contribute to the sparse literature on the impact of corporate control contests on voluntary disclosure by demonstrating that peer firms under control threat emphasize bad news to preempt control threat.

Shifting Paradigm? Long-Term Value Creation as a Normative Principle in a Hostile Takeover: Evidence from the Netherlands

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Shifting Paradigm? Long-Term Value Creation as a Normative Principle in a Hostile Takeover: Evidence from the Netherlands

This article provides additional insight on the effectiveness of long-term value creation as a legally enforceable norm in the corporate governance system and provides a framework to anchor long-term value creation in takeover decisions. Since the 2008 financial crisis, a growing number of voices in the business world, government and academia, have urged Western economies to move towards a long-term sustainable growth agenda. Boards have a vital part to play in the development of responsible companies. Corporate governance should encourage boards to do so. This could be viewed as a reaction to the negative effects of capital markets and the resulting short-termism. One key method to encourage sustainable value creation in companies is by incorporating long-term value creation as an open norm in corporate governance systems. In the case of a hostile takeover, the risk of short-termism is exacerbated. As a guiding principle, long-term value (LTV) creation should prevent hostile takeovers that could harm the success of the company concerned. In this research paper, we argue that the recent shift in Dutch case law and revision of the Corporate Governance Code in the Netherlands may serve as an important catalyst for ‘sustainable’ takeover decisions. Through ground-breaking judgments by the Dutch Supreme Court and Enterprise Court, Cancun and Akzo Nobel, LTV has acquired the status of an enforceable norm. We investigated whether this legal norm is empirically substantiated. The research results allow us to make well-grounded statements about the effectiveness of enforcing LTV in future hostile takeover situations.

Killing Corporations to Save Humans: How Corporate Personhood, Human Rights, and the Corporate Death Penalty Intersect

There is a growing sense of frustration among certain groups that the attribution of rights and responsibilities to corporations is evolving in a manner contrary to the best interests of natural persons. In the United States Supreme Court, for example, we have recently seen an expansion of corporate free speech rights (Citizens United, 2010) and religious free exercise rights (Hobby Lobby, 2014), while arguments for holding corporate actors accountable for complicity in human rights violations have been rejected (Kiobel, 2013; Jesner, 2018). One of the primary justifications for expanding corporate rights is the belief that corporate rights should essentially track the rights of the natural persons who own or manage them, which is a position often equated with the aggregate or real entity theory of corporate personhood. Meanwhile, one of the justifications for limiting corporate responsibility is a feared loss of the economic benefits that corporate status bestows on society as a whole in the form of job creation, innovation, etc. This fear of lost productivity is also prominent in discussions surrounding the “corporate death penalty.” This book chapter, forthcoming in The Hostile Takeover (U. of Toronto Press), will argue that the corporate death penalty and corporate personhood are connected in the context of corporate accountability for human rights violations because the fear of the negative consequences of corporate accountability embodied in the corporate death penalty strengthens arguments in favor of corporate personhood theories that support expanding corporate rights, while those same corporate personhood theories support limiting corporate accountability, including accountability via the corporate death penalty. Finally, a number of arguments that challenge both the pro-rights corporate personality theories and the anti-accountability fears triggered by threats of a corporate death penalty will be discussed, thus providing a reasonable starting point for activists seeking greater corporate accountability for human rights violations to challenge the current trend, at least as perceived by some, towards greater corporate rights and less corporate accountability.