Defending an open hostile take-over bid is a prerogative every victim company has and must be proceeded with. There are several defensive postures that could be made by the victim company to forestall such hostile takeover. By the same token, the bidding party too has filial duty, if we are to believe master strategist Sun Tzu:
A number defensive counter moves are available in the annals of business strategy. Chief amongst these are poison pill defence and white knight defence. In the case of former the victim company calibrates the poison pill as a flip –in and flip-out versions.
A "flip-in" pill version allows the
company to issue preferred shares that only existing shareholders may buy,
diluting the hostile bidder's potential purchase. "Flip-over" pills
allow existing shareholders to buy the acquiring company's shares at a
significantly discounted price making the takeover transaction more
unattractive and expensive. (Here)
White Knight defence, on the other hand is employed only if victim company cannot prevent takeover bid on her own strength and needs to corral in a friend or ally of the business as a sort of white knight to buy controlling interest in the company just before hostile bidder does that in a stock exchange or otherwise.
The worst case scenario is reducing the company worthless in the eyes of an attacker. The defending company and its stakeholders can get together to legally dissolve the company, denude its valuable assets, exit from primary markets, dispose brands and patents and do everything that amounts to asset and value stripping to render the targeted company per se as an useless portfolio to be acquired by the attacker, in the event of bid going through.
This Samson option is the type of desperate move or Hara-Kiri step as the Japanese say that must be avoided at all. Sun Tzu the master strategist begins with the following command in his magnum opus “Art of War” Chapter 3 titled “Attack by stratagem”: “In the practical art of war, the best thing of all is to take the enemy's country whole and intact; to shatter and destroy it is not so good. So, too, it is better to recapture an army entire than to destroy it, to capture a regiment, a detachment or a company entire than to destroy them”.
Understandably, either the attacker or the defender has the ability to destroy assets according to their own judgement. The only question is “Cui bono” (Latin for whose benefit). The destruction of company by its own stakeholders before falling on the hands of aggressive opponent is counterproductive because neither party stands to benefit.
Sun Tzu, quintessentially in his business strategy element, cautions the attacking company to avoid pushing the victim company stakeholders desperate. In this case sweetening the bid with conditions and caveats that are beneficial to the present stakeholders need to be incorporated in the bid document. To put in another way, the bidder enters into entente cordiale with the present stakeholders that that bidder stands to honour all his terms in the post- takeover phase.
Predictably, this gesture would put the victim in ease and dissolves whatever doubts that remain. What is more, as Sun Tzu broaches over the subject of continuing employment of generals & soldiers in the victor’s army in elsewhere in his book, the bidder too should give some kind of guarantee that present managers & employees could continue to stay in their present jobs as they so wish!
Cheers!
Muthu
Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business Strategist
No comments:
Post a Comment