Mergers and Acquisitions 2

Summaries

Pre-offer Defense Mechanism

1)      Poison Pill – gives shareholders to buy additional shares at discount. Flip-in: buy target company share; Flip-out: buy acquirer shares. Dead hand provision: redeem the pill before triggering.

2)      Poison Put – give option to creditor to redeem repayments

3)      Reincorporate in states with strict takeover law

4)      Staggered board: 1/3 of board members are elected each year

5)      Restricted voting rights with high share ownership

6)      Supermajority voting for mergers

7)      Fair price amendment

8)      Golden parachutes – gives managements lucrative cash to leave after merger

Post-offer defense mechanisms

1)      Just say no – announce

2)      Litigation – anit-trust, securities

3)      Greenmail – buy back shares at premium

4)      Share repurchase – compete with bidder

5)      Leveraged recapitalization – make capital structure worst by borrow to repurchase

6)      Crown jewel dense – sell the best business

7)      Pac-man defense – counteroffer

8)      White Knight defense – 3^rd party to compete with merger

9)      White Squire defense – have smaller 3^rd part to take up enough share to stop merger

US Antitrust Law

1)      1890: Sherman Anti-trust Act – DOJ lacked resources to enforce/ ambiguous

2)      1914: Clayton Antitrust Act – more specific/ Federal trade commission (FTC) formed

3)      1950: Celler-Kefauver Act – closed loop hole to monitor asset purchase also

4)      1976: Hart-Scott-Rodino Anti-trust Improvements Act of 1976: All proposals have to be reviewed by FTC first

Herfindahl-Hirschman Index (HHI) after merger (of whole industry)

1)      if <1000, ok

2)      if >1000, <1800, and +100,  possibly be challenged.

3)      If >1800, and +50, probably violate