Takeover Bids Research Articles

Editorial: Takeover Bids by Controlling Shareholders

Editorial: Takeover Bids by Controlling Shareholders

VALUATION IN BRAZIL IN THE LAST 20 YEARS: AN ANALYSIS OF THE PREMISES ADOPTED IN THE TAKEOVER BID ASSESSMENT REPORTS

Purpose: An assessment report involves defining and adopting each premise for the valuation method used. In the core of the assessment, solid premises are crucial to ensure that the resulting value is representative of the reality imposed in the evaluation. This research aimed to analyze whether the values adopted in the projection premises align with the actual values over time. Design/Methodology/Approach: Twelve (12) essential premises commonly used in assessment reports were considered. The unique aspect of this study is its focus on all takeover bid reports available at the Securities and Exchange Commission of Brazil over the last 20 years. Findings: The main results indicate that 50% of the analyzed premises exhibited some form of bias, predominantly an increase in the projected values compared to the actual values obtained. These findings were statistically proven through hypothesis tests for paired values. Research, Practical & Social Implications: This research not only aims to contribute to the professional development of those involved in constructing assessment reports but also encourages future studies to focus on analyzing the quality of the premises used and their sources. This will allow for the continuation of such research, considering the growing interest in this type of study within the academic community. Originality/Value: It was found that the projected premises are more stable than their actual values obtained subsequently.

Post‐IPO lead venture capital firm involvement, merger‐related litigation and target firm valuation

AbstractVenture capital firms (VCs) provide certification and monitoring services to the initial public offering (IPO) companies they finance, as has been well documented in the academic literature. Yet, there are few studies that explore what role – if any – VCs play when an IPO company is subsequently acquired, particularly if that acquisition is legally contested. Using a sample of 721 merger and acquisition (M&A) offers for US VC‐backed IPO companies, announced between 1996 and 2018, we find that a takeover bid that occurs in the presence of the lead VC commands a higher target firm valuation and is less likely to be legally contested than a bid for a company from which the lead VC has already exited. In addition, companies in which the lead VC is present enjoy higher stock‐price returns in response to M&A announcements. Our results provide new evidence regarding VC certification and monitoring – including its role as a litigation deterrent – long after the IPO.

Polish Takeover Regulation: The Recent Chapter in the Long Story of Flawed Rules, Legislative Hesitation and Policy Mistakes

This paper presents a critical examination of recent Polish takeover regulation from a perspective of evolution of capital market law in Poland. The study is based on both legal analysis and an empirical and statistical approach. Firstly, as a starting point, it briefly describes the mandatory bid rule and Takeover Bids Directive as well as the development of early Polish provisions. Secondly, the paper elaborates on the normative model of takeovers, which was in force until 2022. Using a case study and a comprehensive statistical examination of all mandatory bids carried out between 2008 and 2017, it shows how the unusual and incorrect legislative structure of two thresholds of control (33% and 66% of votes) allowed the actual circumvention of mandatory bids, to the detriment of minority shareholders. The paper also describes political considerations and political influences on the legislative process, which led to the failure of the 2014–2015 takeover law proposal. The core of the paper is devoted to the current takeover rules. Statistical research of ownership structures in Poland shows that the threshold of control set at 50% of votes is undoubtedly too high, which entails risks to investor protection that may arise from the adopted model. Based on research on significant holdings in Polish listed companies, the paper further elaborates on the notion of control over a public company and proposes a regulatory utility function to determine the desired threshold of control. This leads to the conclusion that the optimal regulatory threshold of control, given the characteristics of the Polish capital market, is 30% of votes.

Negative Implications of Greater Access to the Courts in the Takeover Process

Abstract 358 Recent judgments of the Court of Justice of the European Union involving Austria and Italy raises the question of whether greater access to the courts makes ineffective the duty of supervisory authorities in enforcing the mandatory bid rule. This question is discussed in the context of provisions in the Takeover Bid Directive that enables Member States to avoid disruptive greater access to the courts. The overarching argument advanced in this article is that a system of takeover regulation that provides parties the ability to challenge regulatory decisions in courts is bound to cause delays and uncertainty in the takeover process. In the UK, the Takeover Bid Directive was implemented in a way that limits greater access to the courts for parties that are required to comply with the ruling of the supervisory authority. The article suggest that the UK approach may provide a benchmark for reform in EU countries. 359

A fast look-up method for Bayesian mean-parameterised Conway–Maxwell–Poisson regression models

Count data that are subject to both under and overdispersion at some hierarchical level cannot be readily accommodated by classic models such as Poisson or negative binomial regression models. The mean-parameterised Conway–Maxwell–Poisson distribution allows for both types of dispersion within the same model, but is doubly intractable with an embedded normalising constant. We propose a look-up method where pre-computing values of the rate parameter dramatically reduces computing times and renders the proposed model a practicable alternative when faced with such bidispersed data. The approach is demonstrated and verified using a simulation study and applied to three datasets: an underdispersed small dataset on takeover bids, a medium dataset on yellow cards issued by referees in the English Premier League prior to and during the Covid-19 pandemic, and a large Test match cricket bowling dataset, the latter two of which each exhibit over and underdispersion at the individual level.

Do Classified Boards Deter Takeovers? Evidence from Merger Waves

AbstractWe exploit the arrival of industry-wide synergistic merger waves to identify whether classified boards deter takeover bids. In a stylized model, we show that when target classified boards are costly to bidders, their negative effect on takeover likelihood should be more pronounced during merger waves. Using a sample of takeover bids in the United States between 1990 and 2016, we find strong evidence supporting this prediction. The results are robust to accounting for the benefits of classified boards and controlling for other antitakeover provisions. Our findings suggest that classified boards effectively reduce a firm’s exposure to the takeover market.

СПОСОБИ ЗАХИСТУ ПРАВ МІНОРИТАРНИХ АКЦІОНЕРІВ У СПОРАХ ПРО ОБОВ'ЯЗКОВИЙ ПРОДАЖ АКЦІЙ

Background. The institution of mandatory sale of minority shareholders' rights at the request of a person (group of persons) who owns a dominant controlling stake (squeeze-out) is new for the theory and practice of the domestic corporate law. In the legislation of the EU countries, a public offer is a mechanism that guarantees the protection of minority shareholders in the process of redistribution of corporate control and takeover of a joint-stock company and ensures a balance of private and public interests in a joint-stock company in the process of the exit of a public company from the regime of publicity and the termination of share trading on the regulated stock market. The updated legislative regulation of Ukraine in the part of the mandatory sale of shares (squeeze-out) has gaps in the part of special methods of the protection of minority shareholders' rights and interests violated by such a transaction, for example, in case of the understatement of the shares price or non-compliance with the normatively established rules for the procedure of mandatory sale of shares. Methods. The article analyzed the practice of the Supreme Court aimed to solve this problem and determine methods of protection the minority shareholders' rights in a jurisdictional form. General scientific and special scientific methods are using the article,: system analysis, dialectical, system-structural, analyzed the legal norms, doctrinal provisions and practice of the Supreme Court, which regulate the procedure for determining and choosing methods of protecting the minority shareholders' rights in а jurisdictional form. Results. Effective and ineffective methods of protecting of the minority shareholders' rights were determined. Among the effective methods of protection, the following were highlighted: recovery of damages, recovery of compensation – the amount of money that is the difference between the fair market value of shares and the price of their mandatory sale, recognition of the right to receive compensation, recovery of acquired property (money) without proper legal basis, recognition voiding the deed of compulsory sale of shares of the minority shareholder-plaintiff by public irrevocable demand, recovery of inflationary losses and 3 % per annum. Ineffective methods of protection were defined as the invalidation the decision of the supervisory board and the invalidation of a public irrevocable demand, the termination of the action that violates the right. Conclusions. The specified legal regulation without defining in the law special methods of protection and joint liability of the applicant of a takeover bid and persons acting together with him appears to be insufficient. The shares of minority shareholders are redempted without a will, the shareholders are not able to influence the process of the redemption and determination of the shares price and the law does not provide grounds to stop the squeeze-out procedure for the appeal period.

Why Fairness Opinions? Theoretical foundation and clinical study in Switzerland

Fairness opinions are third-party opinions on the financial fairness of transactions for shareholders. They are primarily commissioned by management bodies of targets especially in the case of public takeover bids. The main objectives of this commissioning are said to be better information provision, independent certification, and documentation of the basis for management decisions and safeguarding. However, an empirical verification of these anecdotally mentioned objectives has not been performed so far. On the basis of a detailed, clinical study of 44 Swiss fairness opinions from the period 2010 to 2020, these objectives are reviewed. It is shown that many arguments speak against the hypotheses of information provision and certification, but that these are very much in line with the hypothesis of formal documentation and safeguarding of the boards of management.

To tender or not: an investor’s dilemma in the first hostile takeover in Indian IT services industry

Learning outcomesThe learning outcomes of this study are as follows:1. Learn to analyze a hostile takeover bid from the perspectives of the acquirer, target firm’s management and a large institutional investor in the target firm.2. Review the structuring, financing, valuation, mode of consideration, legal and regulatory aspects of a hostile takeover.3. Understand the role of the target firm’s board in a hostile takeover transaction.4. Address “to sell or not to sell” dilemma of a large institutional investor in the target firm in the event of a tender offer given financial and non-financial considerations.Case overview/synopsisOn June 14, 2019, Pulak Prasad, Founder and Chief Executive Officer (CEO) at Nalanda Capital, in consultation with other managing partners at Nalanda Capital, had to decide whether to tender a 10.6% equity holding in Mindtree Ltd. in an unsolicited open offer made by Larsen and Toubro (L&T) Ltd. Until then, Nalanda Capital, led by Prasad, had aligned with the Mindtree founders and had led a campaign to thwart L&T’s bid to acquire Mindtree; L&T’s offer to acquire 31% of Mindtree shares was because of open on June 17, 2019 and it is time for Prasad and the management team to take a reasoned call – whether to stay in Mindtree or to exit? Associated aspects included – What could be the consequences of not selling the stake? What could be L&T’s game plan? Could Mindtree continue to create wealth for its shareholders under L&T?Complexity academic levelThis case is appropriate for Mergers & Acquisitions and Strategic Financial Management courses in modules focused on structuring, financing and takeover defence techniques in a hostile takeover transaction. The case is appropriate for graduate MBA and EMBA programmes.Supplementary materialsTeaching notes are available for educators only.Subject codeCSS 1: Accounting and Finance.

The company control threshold in Poland after the reform of mandatory takeover bids

This article is devoted to the problem of mandatory takeover bids in Poland on the grounds of previously binding regulations and the new legal provisions. After many years of waiting by the Polish investors, on 30 May 2022, amendments to the Public Offering Act came into force. They primarily concern changes in the rules regarding conducting mandatory takover bids for the sale or exchange of shares in public companies on a regulated market. The most important change, which also constitutes the main subject of this article’s discussion, is the introduction of the so-called control threshold for companies, at the level of 50%. The aim of this article is to present the former regime on takeover bids as well as to critically analyze the newly adopted one. Moreover, the author gives comparative insight into the matter and criticizes the current Polish regulation as inconsistent with the European law. The paper concludes with a de lege ferenda call for revision of the control threshold under Polish capital market laws in order to ensure investor protection safeguards compliant with the EU law.

Takeover Vulnerability and Pre-Emptive Earnings Management

ABSTRACT We explore whether firms that are vulnerable to takeovers pre-emptively manage earnings in anticipation of such events. We find a positive relationship between firms' vulnerability to takeovers and their propensity to manage earnings, mainly through the manipulation of real activities. We consider two motivations for firms' pre-emptive earnings management behavior; (1) to deter future takeovers and (2) to optimize M&A outcomes. Concerning the former, we document evidence consistent with entrenched managers using real earnings management to deter or delay future takeovers. Concerning the latter, we find evidence suggesting that, contingent on receiving takeover bids, vulnerable firms that pre-emptively manipulate real activities extract comparatively higher merger premiums. Overall, our findings suggest that managers of vulnerable firms pre-emptively manage earnings to purposefully delay the timing and optimize the outcomes of prospective takeovers.

The wealth effects of takeover bids regulation in the European Union

AbstractWe investigate the wealth effects of the Takeover Bids Directive, enacted by the European Union (EU), on mergers and acquisitions. The directive aims at protecting target minority shareholders by restricting antitakeovers provisions and preventing managerial entrenchment. We test the regulation impact using a treatment sample of EU public acquisitions and a control sample from outside the EU. Our results suggest diverse effects of the regulation across treatment countries: acquirers from countries with better shareholder protection engage in more value‐enhancing acquisitions postregulation that could otherwise be too costly. The regulation also increases the likelihood of firms becoming targets and raises market value.

Cijena u ponudi za preuzimanje

Rules relating to equitable price to be offered in takeover bid represent corner stone of takeover regulation. They aim to achieve an adequate protection of the minority shareholders and sustain effectiveness of capital market, particularly regarding its allocative function. Relevant criteria and their application depend on whether the offeror and/or persons acting in concert with him acquired target company’s voting shares in the period preceding the obligation to publish takeover bid, period from publishing of the bid until its closure for acceptance or period following closure of the takeover bid. As Croatian law departs from solutions adopted in member states that otherwise serve as legislative role models, as well as from certain solutions provided by European instruments, paper proposes teleological interpretation of Art. 16 of Croatian Law on taking over of joint stock companies. By considering the goals of the equitable price rule and internal interconnection with other regulations pertaining to takeover process, special emphasis is given to the precise determination of the moment when the offeror acquires voting shares. Such an approach aims to minimize existing legislative inconsistencies, which often relate to either faulty drafting or legislative intentions aiming to provide an autonomous solution that serves presumed particularities of Croatian capital market.

The Lanica affair: An attempted takeover of a consumer co-operative society

Early in 1997 a series of events occurred which sent a seismic shock wave through the UK co‑operative sector, whose ripples reached throughout the co-operative ‘world’ and are still being felt today. We had got used to the idea of ‘demutualisation’ of the UK building society sector (which is now down to around 30 per cent of its former size) but the prospect of a hostile attempt to ‘deco‑operativise’ a consumer co-operative had been thought unlikely. It is the sort of event that, when it comes, leaves one wondering why one had been so complacent, and determined never again to take the existence of the co-operative form of business for granted. To paraphrase a well known saying, there is nothing so concentrates the mind than the prospect of one’s own (organisation’s) death. In this article, the story is told of how the takeover bid came about, how it was overcome, and where this leaves the UK co-operative sector. The subject is so controversial, and the memory of it so recent, that the article concentrates on providing an accurate account of what happened and when (though towards the end some more personal views are given about the implications of the bid for the co‑operative sector as a whole). It is important that we have as accurate and unbiased an account as possible, as an archive on which to build.

Deep learning-based residual control chart for count data

Statistical process control for count data has difficulty overcoming multicollinearity. In this paper, we propose a new deep learning residual control chart based on the asymmetrical count response variable when there are highly correlated explanatory variables. We implement and compare different methods such as neural network, deep learning, principal component analysis based Poisson regression, principal component analysis based negative binomial regression, nonlinear principal component analysis based Poisson regression, and nonlinear principal component analysis based negative binomial regression in terms of the root mean squared error. Using two asymmetrical simulated datasets generated by the combined multivariate normal, binary and copula functions, the neural network and deep learning have a smaller mean, median, and interquartile range when compared to the principal component analysis based Poisson regression, principal component analysis based negative binomial regression, nonlinear principal component analysis based Poisson regression, and nonlinear principal component analysis based negative binomial regression. We also compare the deep learning and neural network based residual control charts in terms of the average run length with the copula based asymmetrical simulated data and real takeover bids data.

Non‐executive directorship importance and takeover hostility: Australian evidence

AbstractThis study investigates the importance of the target firm directorship to target firm non‐executive directors during takeovers. Using Australian data and a size‐based measure of directorship importance, we find a positive association between takeover hostility and directorship importance after controlling for takeover premiums and target firm size. Further analysis reveals that directorship importance leads to a greater likelihood of offer price revisions following initial rejection of a takeover bid, but not the likelihood of bid success. Our findings are consistent with target firm non‐executive directors exhibiting self‐serving behaviour at directorships which they consider more important to their reputation.

The Rise and Fall of United Grain Growers: Cooperatives, Market Regulation, and Free Enterprise

In The Rise and Fall of United Grain Growers, Paul D. Earl traces the history of that powerful western Canadian farmer cooperative and places it in the context of the broader grain industry between 1906 and 2006. This book is more than a standard business or agricultural history, however. The history of “The Company,” as Earl refers to it across its several iterations, is a window into farmers' movements, competing ideologies, corporate takeovers, legal maneuverings, economics, and government power. In addition to traditional source material, Earl leverages his experiences as a former employee of the company and his access to interviews with upper management in the early twenty-first century to produce a unique examination into what was one of the world's largest farmer-owned grain marketing entities and its transition from cooperative to shareholder-dominated corporation.In parts 1 and 2, Earl traces the history of the company and the prairie grain industry from 1906 to 1990, identifying the economic and ideological contours within which wheat marketing operated. Between 1906, when the company began operations in Winnipeg, and 1945, the grain industry shifted from a relatively open and privately controlled market in which free trade predominated to a highly regulated and centralized arena dominated by state and cooperative control. The farming and cooperative community found itself divided between advocates of laissez-faire and government marketing controls. In this period, the company, generally successful, managed to straddle the two positions and embrace elements of both. From the postwar period through the 1980s, pressures to deregulate and return to private control of the grain industry increased, caused by outdated transportation, marketing, and handling arrangements and the concomitant need to modernize and rationalize railway and elevator systems. There were no easy answers to these challenges, as the company, the wheat pools, and various government administrations wrestled with how to enact systemic reforms. The company struggled with its own modernization efforts, and its growth slowed and financial issues mounted.Part 3 of the book examines the end of the company between 1991 and 2006, when the Saskatchewan wheat pool succeeded in a takeover bid. This final third of the book is the meat of Earl's argument, where he investigates the takeover from multiple angles. He ultimately concludes that, though all sides acted in good faith, the sale of the company to the pool was not a fait accompli, and its traditional and historical cooperative role was worth saving. In this period the grain industry underwent a long, overdue massive transformation characterized by deregulation, modernization, and consolidation of grain handling systems and transportation networks. The company adapted to these changes, becoming Agricore United after a merger with the Alberta and Manitoba wheat pools in the late 1990s, and it created a hybrid management and financial structure based on public shareholding and a cooperative farmer/member-dominated board.In 2006 the Saskatchewan pool launched a takeover bid of the company. Within Agricore United, two perspectives developed, and their adherents debated the merits of the takeover. Senior management argued for the “commercial perspective”: shareholder primacy is predominant, and the company should acquiesce to the takeover on grounds that it would increase shareholder returns. Farmer-directors on the board put forth the “traditional perspective”: shareholder primacy took a back seat to preserving the company's historic role as a farmer-controlled cooperative, a business that advocated for the rural community, its members, and its customers. Earl contends that the sale of the company to the pool, which ended a century of farmer control and created a shareholder-dominated corporation, was avoidable and remains regrettable. He explains how the takeover ultimately succeeded because of a lack of leadership, internal divisions, and broader acceptance of the commercial perspective within the company.As a historian, the history of the company within the context of the western Canadian grain industry interested me greatly. This section of the book is the best current analysis of the topic. In addition, I found myself fascinated by Earl's careful delineation of the intricacies of modern corporate law, the internal workings of large-scale businesses, and the complexities and emotions tied up in takeovers and mergers. The Rise and Fall of United Grain Growers is a useful book for scholars of agriculture and business, as well as those seeking insight into policy making, the Canadian grain industry, and corporate law.

The impact of economic nationalism in Europe on the returns to rivals of cross‐border M&A bids

AbstractWe examine the wealth effects of economic nationalism (EN) on domestic and foreign rivals of takeover targets using a novel sample of government‐blocked EU cross‐border takeover bids. We report a significant net contagion effect at bid announcement from regression models resulting in a net gain of €3 million for each rival, on average, with domestic rivals enjoying an additional gain of €10 million. Government intervention results in negative returns, which become even more negative at bid resolution, and the adverse effects are felt by both domestic and foreign rivals. All rivals lose a value of €14 million over the total bid period with domestic rivals losing an additional €17.5 million, on average. The source of the losses are not mutually exclusive and can be due to several factors, including lower future takeover likelihood, failure to capture efficiency gains or loss of economic rents. We show that EN has a significant cost, which is not confined to the EU blocking country.

‘Mandatory’ public takeover bids in Hong Kong: the case of China Oriental

This article examines Hong Kong’s rules and practice on public takeovers and mergers as applied in a dispute involving the rules on mandatory general offers that spanned nearly a decade. Relevant events resulted in three hearings at the Hong Kong Takeovers Panel, which only heard a total of 25 cases in the 18-year period from 2003 to 2020.1 On two occasions, the Takeovers Panel had to answer the following questions: The unusual fact pattern of the case has put the rules on mandatory general offers to the test. The case reflects the Hong Kong Takeovers Panel’s regulatory style which tends to prefer an intuitive understanding of the facts of a case over a strict interpretation of the text of the Takeovers Code. It also highlights several procedural aspects that prejudice minority shareholders. Above all, the case reminds market participants of the cautionary language in the Takeovers Code that it ‘should not be interpreted as if they are statutes’ and ‘represent[s] a consensus of opinion of those who participate in Hong Kong’s financial markets and the SFC’.