Takeover Attempts Research Articles

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 uncomfortable truth: Canada’s wary ambivalence to Chinese corporate takeovers

This article examines the behavioural patterns of successive Canadian governments in responding to three takeover attempts of iconic high-value Canadian corporates by large state companies from China. The first is China Minmetals Corporation’s attempt to acquire Noranda in 2004–2005 during the Liberal government of Paul Martin, the second is China National Offshore Oil Corporation’s acquisition of Nexen in 2012 during the Conservative government of Stephen Harper, and the third is China Communications Construction Corporation International’s bid for Aecon Group in 2017–2018. This analysis highlights some important similarities in the behavioural response of the Canadian governments across the three cases: ambivalence and wariness. Policy lessons are addressed in the conclusion.

Extreme Conditional Tail Moment Estimation under Serial Dependence

Abstract A wide range of risk measures can be written as functions of conditional tail moments (CTMs) and value-at-risk (VaR), for instance the expected shortfall (ES). In this paper, we derive joint central limit theory for semi-parametric estimates of CTMs, including in particular ES, at arbitrarily small risk levels. We also derive confidence corridors for VaR at different levels far out in the tail, which allows for simultaneous inference. We work under a semi-parametric Pareto-type assumption on the distributional tail of the observations and only require an extremal-near epoch dependence assumption on the serial dependence. In simulations, our semi-parametric ES estimate is often shown to be more accurate in terms of mean absolute deviation than extant non- and semi-parametric estimates. An empirical application to the extreme swings in Volkswagen log-returns during the failed takeover attempt by Porsche illustrates the proposed methods.

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.

Willingness to initiate a fight but not contest behaviour depends on intruder size in Lethrus apterus (Geotrupidae)

In resident-intruder contests, residents are expected to win more often than intruders unless the intruder has significantly higher competitive ability that is often determined by its size. Therefore, small intruders are expected to be less motivated to engage in contests than large ones and intruder size is predicted to have a positive relationship with the duration and escalation of the encounters. In a field experiment we tested these hypotheses in Lethrus apterus, a biparental beetle breeding in underground tunnels, by placing either a small or a large male in front of a tunnel occupied by a resident male. In agreement with our predictions residents won most of the encounters. Small intruders were less willing to engage in a contest and were less successful in their takeover attempts than large intruders. Contrary to many studies however, the duration and escalation (measured by the occurrence and latency of the different contest stages) of the fight in front of the burrow did not differ between the two intruder size categories. These findings suggest that in this species, small and large intruders adjust their prior decisions to their competitive abilities but once a fight started, they behave similarly during the contest.

Female choice impacts residential male takeover in golden snub-nosed monkeys (Rhinopithecus roxellana).

In primate species with social systems consisting of one-male breeding units (OMUs), resident male takeover represents a major challenge to individual reproductive success and mating strategies. The golden snub-nosed monkey (Rhinopithecus roxellana) is characterized by large multilevel societies (MLS) comprised of several OMUs and all-male units (AMUs); however, the factors and mechanisms associated with resident male takeover, which offer important insight into primate reproduction and social strategies, are still poorly understood. Based on 5-year monitoring data from a free-ranging herd of golden monkeys from the Qinling Mountains in China, we categorized three phases of an OMU, that is, a rising phase, developing phase, and declining phase. The rising and declining phases were unstable periods in which male takeover in an OMU might occur. Factors causing takeover, such as leader male rank, fighting ability, reproduction rate, and affiliation (proximity, allogrooming), were analyzed for males and females and for different OMUs. Results indicated that the new resident male’s fighting ability was lower than that of the former resident male in 23 cases. After replacement, the rank order of the new resident male significantly declined. Females involved in a takeover increased their distance from the resident male and decreased mating frequency during the three months prior to takeover. Females with infants under one-year-old had a marked effect on the specific time of takeover occurrence. These results suggested that female choice was the main factor deciding whether a takeover attempt was successful. Furthermore, rather than male conflict, females more often initiated and affected takeover and outcome, implying that the social status and competitive ability of the males played lesser roles during takeover.

Merger and Takeover Attempts in Taiwanese Party Politics

Taiwan has experienced a number of party splits and attempted mergers since democratization. These have played a critical role in the development of the country’s party system. While a number of studies have looked at the emergence of Taiwan’s splinter parties, party mergers have not received academic attention. This study aims to systematically examine the process of party mergers and takeovers. We examine four cases of attempted mergers and takeovers. In each case, we focus the analysis around three core questions: (1) How should we best classify the actual outcomes? (2) How we can best explain the variation in outcomes? (3) How can we assess the success of merger/takeover attempts? Unlike earlier studies, we examine a variety of merger outcomes rather than just successful cases. In addition to mergers, we propose the terms negotiated takeovers and hostile takeovers. Our classification scheme is based on relative party power and the inter-party relationship. To explain the variation in outcome, we applied a framework stressing the interplay of contextual, inter-party and inner-party factors. We found key contextual variables were electoral results, relative party sizes and the electoral system. The most important inter-party variables were ideological proximity and inter-party trust following successful cooperation. Lastly, the inner-party balance of power was also critical, particularly, the strength of leaders with favorable attitudes toward the merger project. We assess the success and failure of merger/takeover attempts with reference to election results, post-merger party unity and whether the post-takeover relationship was cooperative.

AkzoNobel, Axalta end merger talks

For the second time this year, AkzoNobel has halted a merger with another paint maker. The Dutch company broke off merger talks with Axalta Coatings Systems, the former coatings business of DuPont, after Axalta received a competing offer from Japan’s Nippon Paint. AkzoNobel’s coatings sales are about $10 billion per year; Axalta’s are $4 billion. AkzoNobel says it still plans to separate its chemicals business. Earlier this year, it fought off a takeover attempt by U.S. rival PPG Industries. PPG walked away in June, but under Dutch law, it may again bid for AkzoNobel next month.

Target Board’s Conduct and Shareholders Rights in the Context of Hostile Takeovers in China: A Case Study of Vanke v Baoneng.

Vanke, the biggest Chinese real estate developer, has recently become a target of an unsolicited takeover attempt by Baoneng Group. While the battle is still ongoing, practitioners and scholars from all over the world are in waiting on the further development of events. At the moment it seems rather unlikely that the acquisition will be completed. However, if successful, this takeover would be considered a milestone in the advancement of the market for corporate control in China. Thus, a thorough analysis of the Vanke’s takeover as a case study can provide a unique insight into the current state of hostile takeover regulations in China as well as the commercial and societal exigencies associated with the jurisdiction. Underpinning the paper are questions of whether the Chinese takeover regime permits the use of defensive mechanisms and what kind of tactics, if any, are allowed. This paper offers a range of possible responses that the target board can utilise in the face of hostile acquisition constrained by the law and other factors. By examining disclosed corporate documents, primary legal sources, regulatory responses and media coverage, the paper attempts to present not only the existing defences regulations, but also their enforcement in China. Since the battle is not yet finalised, it is difficult to draw definitive conclusions; nevertheless, an exploration of the issues that have arisen can help to understand how the takeover regime operates in the Chinese social, political and economic context. This paper offers a commercially contemporary addition to the M&A scholarship that brings light to the issue of hostile takeovers in China, which is of interest to both business and legal scholars and, more generally, to the global business community.

Putting Directors’ Money Where Their Mouths Are: A New Approach to Improving Corporate Takeover Dynamics

This paper aims to improve shareholder protection from underpriced bids in takeover situations. Target boards, as stewards of the corporation who typically possess superior information about the desirability of unsolicited bids, can be expected to protect their shareholders from such bids. Unfortunately, because they have a conflict of interest with their shareholders in takeover situations, they tend to reject hostile bids to an excessive degree. Moreover, the current Delaware doctrine is ineffective in monitoring boards’ responses to takeovers, largely because boards might use selective inside information to which the courts lack access and because their judgments are backed by subjective, hard-to-attack legal and financial expert opinions which courts are ill-equipped to challenge. To rectify the problems of courts’ and shareholders’ inferior information as well as boards’ skewed incentives, I propose an arrangement in which target boards wishing to veto nonstructurally coercive takeover bids would be encouraged to demonstrate their opposition by committing to buy, if the bid fails, and hold for a specified period of time a certain amount of target stock at the bid price. The directors would be incentivized to follow the arrangement because it would require courts, in a potential fiduciary duties lawsuit, to give directors’ commitments significant weight when evaluating their defense that they rejected the bid to protect their shareholders. Adopting the proposed arrangement can significantly address important problems in corporate takeovers that have long claimed the attention of corporate law scholars and financial economists. In particular, inducing target boards to credibly transmit their genuine bottom-line understanding about the desirability of a bid would offset the courts’ inability to review the directors’ decision effectively. Imposing personal costs that the directors would uniquely incur if they wish to reject hostile bids would counteract the directors’ ex-post incentive to reject hostile bids excessively. Increasing the directors’ cost of a takeover attempt would improve market discipline and motivate the directors to increase firm value and reduce agency costs. Finally, favoring firms with high long-term value would protect them from myopic bidders and alleviate their unrelenting pressure to meet quarterly earnings expectations. For these reasons, the proposed arrangement could greatly improve corporate takeover dynamics.

The Timing and Source of Long-Run Returns Following Repurchases

This paper investigates the timing and source of anomalous positive long-run abnormal returns following repurchase authorizations. Returns between program authorization and completion announcements are indistinguishable from 0. Abnormal returns occur onlyaftercompletion announcements. Long-run returns are largely attributable to announcement returns at subsequent authorizations and takeover attempts; that is, anomalous post-authorization returns are not persistent drifts but rather step functions. These findings have important implications for prior papers examining this most persistent and widespread anomaly. Further, our results serve to refocus the search for a rational explanation for the anomaly on subsequent repurchase announcements and takeover bids.

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.

The value implications of target debt issuance in withdrawn takeovers: What role do country-specific M&A regulations play?

Under the implicit assumption of well-developed capital markets and strong investor protection, finance theory predicts that managers of target firms will respond to a takeover threat by increasing firm leverage. Leverage increases target management’s negotiating position with the bidder, potentially thwarting the acquisition altogether. Target management should therefore have less incentive to increase leverage where investor protections are weak and financial regulations favor incumbents. Examining changes in firm leverage in an international sample of target firms, we find that targets significantly increase leverage around takeover attempts, but only in countries with well-developed capital markets and strong investor protections. These target firms realize negative abnormal returns around debt issuance announcements, especially those between takeover announcement and withdrawal. Further, target shareholders suffer significantly negative long-term returns after the takeover bid is withdrawn. Negative returns are significantly mitigated, but not eliminated, with high performance target managers in place.

Scanning and updating failure: How AT&T turned its political capability into a core rigidity

This case highlights how AT&T utilized political capabilities and a non-market strategy.The context for this case study is AT&Ts use of political capabilities to secure anti-trust approval in its horizontal acquisitions.Management at AT&T failed to incorporate a changing societal and political environment around 2009 and, therefore, the political capabilities turned into rigidities.By failing to incorporate this new information, AT&T pursued an acquisition of T-Mobile USA, which was subsequently blocked by federal regulators.AT&T took loses exceeding $6 Billion due to its failed takeover attempt.

Hostile takeover in Japan: institutional constraints and change

The Livedoor-Fuji TV takeover battle for Nippon Broadcasting Systems is considered one of the greatest uproars in the corporate takeover in the history of Japan. The epic battle is believed to have its lasting impact on the basic institutions that govern the country's takeover market. The paper aims to investigate the institutional changes, if any, Japan has experienced following the Livedoor episode. Analysing a handful number of takeover attempts before and after the battle, the paper finds that although some surface changes can be observed, a broad-based change is yet to be seen. This can be attributed to the informal institutions which have long been recognised as fundamental building blocks of the national model of corporate governance in Japan.

Do Capital Structure Adjustments by Takeover Targets Influence Acquisition Gains?

Existing theoretical models predict that takeover targets optimally increase debt and repurchase equity around takeover attempts. Ultimately, these leverage shifts should benefit target shareholders and enhance bargaining power in negotiations with acquiring firms. We show that target firms indeed issue higher levels of debt, and simultaneously repurchase more equity, relative to a set of matched firms, during the period from one year prior to takeover announcement through completion. We find that bank debt is the primary source of these debt increases. Lastly, we find evidence consistent with the expectation of improved bargaining power for target equityholders with target debt issuances. We document that compared to debt issued by non-target firms, announcements of debt issuances by takeover targets are associated with additional positive abnormal returns to target stockholders. Additionally, at least some of these target equity gains appear to come at the expense of bidder shareholders. These impacts on target and bidder abnormal returns are more significant for debt issuances occurring in the periods immediately preceding and following takeover announcement, as well as for issuances of bank debt. Debt issuances occurring after takeover announcement appear to reverse initially lower (higher) abnormal returns experienced by targets (bidders) upon takeover announcement itself, and further increase the likelihood of positive adjustments to acquisition premiums offered by the bidders to the targets.

Putting Directorss Money Where Their Mouths are: A New Approach to Improving Corporate Takeover Dynamics

This paper aims to improve shareholder protection from underpriced bids in takeover situations. Target boards, as stewards of the corporation who typically possess superior information about the desirability of unsolicited bids, can be expected to protect their shareholders from such bids. Unfortunately, because they have a conflict of interest with their shareholders in takeover situations, they tend to reject hostile bids to an excessive degree. Moreover, the current Delaware doctrine is ineffective in monitoring boards’ responses to takeovers, largely because boards might use selective inside information to which the courts lack access and because their judgments are backed by subjective, hard-to-attack legal and financial expert opinions which courts are ill-equipped to challenge.To rectify the problems of courts’ and shareholders’ inferior information as well as boards’ skewed incentives, I propose an arrangement in which target boards wishing to veto nonstructurally coercive takeover bids would be encouraged to demonstrate their opposition by committing to buy, if the bid fails, and hold for a specified time a certain amount of target stock at the bid price. The directors would be incentivized to follow the arrangement because it would require courts, in a potential fiduciary duties lawsuit, to give directors’ commitments significant weight when evaluating their defense that they rejected the bid to protect their shareholders. Adopting the proposed arrangement can significantly address important problems in corporate takeovers that have long claimed the attention of corporate law scholars and financial economists. In particular, inducing target boards to credibly transmit their genuine bottom-line understanding about the desirability of a bid would offset the courts’ inability to review the directors’ decision effectively. Imposing personal costs that the directors would uniquely incur if they wish to reject hostile bids would counteract the directors’ ex-post incentive to reject hostile bids excessively. Increasing the directors’ cost of a takeover attempt would improve market discipline and motivate the directors to increase firm value and reduce agency costs. Finally, favoring firms with high long-term value would protect them from myopic bidders and alleviate their unrelenting pressure to meet quarterly earnings expectations. For these reasons, the proposed arrangement could greatly improve corporate takeover dynamics.

Aiming low: A resident male's rank predicts takeover success by challenging males in Yunnan snub-nosed monkeys.

In many primate species that form one-male breeding units (OMUs), the threat of a takeover by a bachelor male represents a major challenge to group stability and individual reproductive success. In the case of snub-nosed monkeys, which live in large multilevel or modular societies (MLS) comprising several OMUs that travel, feed and rest together and as well as one or more all male units (AMUs), the process by which rival males challenge resident OMU males for access to females is poorly understood. From September 2012 to October 2013, we recorded 48 cases in which rival males visited an OMU in a MLS of Yunnan snub-nosed monkeys (Rhinopithecus bieti) inhabiting the Baimaxueshan National Nature Reserve, Yunnan Province, China. In 40 cases, rival males engaged in mild agonistic interactions (approaching, staring, teeth-baring and chasing) but failed to take over the group; we counted these visits as failed takeovers, recognizing that they may nevertheless allow rival males to assess the competitive ability of residents. During eight successful takeovers, however, there was severe physical aggression between challenging and resident males, with serious injuries to participants. We found that neither the number of adult and subadult females in an OMU, the number of non-pregnant, non-lactating adult females in an OMU, nor the rank of a resident male relative to other resident males in the MLS predicted which OMU a challenging male targeted for takeover. However, a resident male's rank significantly predicted whether takeover attempts were successful. Specifically, challenging males were more successful in displacing a lower-ranking resident male than a higher-ranking male. Given that a Yunnan snub-nosed monkey MLS may contain as many as 40 resident and 36 bachelor males, continued research is required to determine the set of factors that enable resident males to maintain high social rank and successfully defend their harems. Am. J. Primatol. 78:974-982, 2016. © 2016 Wiley Periodicals, Inc.

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.