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 at the end of the fourth merger wave that lasted a few years, hostile takeovers started to increase in frequency. They became commonplace in the fifth merger wave and remain so.

This chapter analyzes the evolution of takeover tactics over the past quarter of a century and discusses how they are used and their relative effectiveness. 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 target, it is unlikely that a bear hug will be sufficient to complete the takeover. However, a bear hug may be a precursor to an eventual tender offer.

The most frequently used hostile takeover tactic is the tender offer (see Figure 6.1). 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 becomes 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.

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Mergers, Acquisitions, and Corporate Restructurings
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Case Studies xi
  • Preface xv
  • 1 - Background 1
  • 1 - Introduction 3
  • 2 - History of Mergers 35
  • 3 - Legal Framework 74
  • 4 - Merger Strategy 125
  • 2 - Hostile Takeovers 181
  • 5 - Antitakeover Measures 183
  • 6 - Takeover Tactics 243
  • 3 - Going-Private Transactions and Leveraged Buyouts 291
  • 7 - Leveraged Buyouts 293
  • 8 - Topics in Going-Private Transactions 335
  • 9 - Employee Stock Ownership Plans 366
  • 4 - Corporate Restructuring 387
  • 10 - Corporate Restructuring 389
  • 11 - Restructuring in Bankruptcy 435
  • 12 - Corporate Governance 473
  • 13 - Joint Ventures and Strategic Alliances 523
  • 14 - Valuation 538
  • 15 - Tax Issues 607
  • Glossary 623
  • Index 631
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