Mergers, Acquisitions, and Corporate Restructurings

By Patrick A. Gaughan | Go to book overview

6
TAKEOVER TACTICS

During the fourth merger wave of the 1980s, increasingly powerful takeover tactics were required to complete hostile acquisitions because potential targets erected ever-stronger antitakeover defenses. Before this period, comparatively simple tactics had been sufficient to force a usually surprised and bewildered target into submission. As hostile takeovers reached new heights of intensity, targets became more wary, and bidders were required to advance the sophistication of their takeover tactics. When the pace of takeovers slowed at the end of the fourth merger wave, hostile takeovers also became less frequent. Nonetheless, after a lull that lasted a few years, hostile takeovers started to increase in frequency. In the fifth merger wave, hostile takeovers are once again commonplace. However, because of the presence of a broad array of enhanced defenses, takeover tactics need to be correspondingly sophisticated to be successful.

This chapter analyzes the evolution of takeover tactics employed in the 1980s and 1990s and discusses the effectiveness and use of these tactics. It will become clear that the options for the hostile bidder are fewer in number compared with the broad variety of defenses that targets implement in advance of and during a hostile bid. The bidder is typically left with the choice of three main tactics: a bear hug, a tender offer, and a proxy fight. Each tactic has its strengths and weaknesses. In addition, each may be implemented in varying manners to increase the likelihood of success. The options and their shareholder wealth effects are the focus of this chapter.

Of the main takeover tactics, bear hugs are the least aggressive and often occur at the beginning of a hostile takeover. When the target is not strongly opposed to a takeover, a bear hug may be sufficient. However, for a determined and firmly entrenched bidder, it is unlikely that a bear hug will be sufficient to complete the takeover.

The most frequently used hostile takeover tactic is the tender offer. The laws regulating tender offers, which are fully discussed in Chapter 3, are approached here from the viewpoint of the impact of takeover rules on the hostile bidder's tactics. For example, we describe under what circumstances a bidder has actually made a legal tender offer and thereby become bound by the filing requirements of the Williams Act. It is shown that such factors may determine the success of the bid. The legal environment determines the rules within which a bidder must structure a tender offer. How these rules affect tender offer tactics is discussed from a strategic viewpoint.

The tender offer process, along with different variations such as two-tiered tender offers and partial tenders, are also described in this chapter. We also consider the shareholder wealth effects of the different types of tender offers and other takeover tactics, just as in

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Mergers, Acquisitions, and Corporate Restructurings
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface xi
  • Part One - Background 1
  • 1: Introduction 3
  • 2: History of Mergers 21
  • 3: Legal Framework 61
  • 4: Merger Strategy 116
  • Part Two - Hostile Takeovers 173
  • 5: Antitakeover Measures 175
  • 6: Takeover Tactics 243
  • Part Three - Leveraged Transactions 289
  • 7: Leveraged Buyouts 291
  • 8: Junk Bonds 330
  • 9: Employee Stock Ownership Plans* 372
  • Part Four - Corporate Restructuring 395
  • 10: Corporate Restructuring 397
  • 11: Restructuring in Bankruptcy 432
  • Part Five - Valuation for Mergers and Acquisitions 459
  • 12: Financial Analysis 461
  • 13: Valuation of a Publicly Held Company 491
  • 14: Valuation of Privately Held Businesses 557
  • 15: Tax Issues 589
  • Glossary 607
  • Index 615
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