MERGERS & ACQUISITIONS Harvard Case Solution & Analysis


Benefits from Takeover Resistance Tactics

            A takeover is defined as a process under which a firm acquires another firm and this results in the change of the controlling interest of the firm which is acquired. There are many ways through which takeovers can occur such as private transactions, proxy contests and acquisitions. However, takeovers can be friendly when the management of the target firm responds to the bid of the acquiring firm and accepts the offer. On the other hand, these takeovers can also be hostile and the managers of the target firm resist the attempts of the acquiring firm by using different defensive tactics. Takeovers can result in the change of the management, layoffs, policy changes, overhaul of the operations of the business and terminations (Ross et al. 2010).

            However, in order to determine that who benefits from the takeover resistance tactics, we need to analyze the motivations and the reasons of the target firm for using these defensive tactics. According to (Ruback 1987), there are numerous reasons due to which the target firms resist takeovers such as the managers have all the inside information about the organization and they know the hidden value within the organization and when they receive the bid price offer for their company, it is certainly less than what they think to be the true worth of the company and as a result they oppose the offer of the acquiring firm. Along with this, the management might want to retain its position within the company especially when it is aware that the acquiring firm seeks to replace the current management with a new management for the company.

            Therefore, in order to overcome these factors, the management of the target firms adopt a range of the takeover tactics such as asset restructuring, share repurchase by the management, standstill and green mail agreements, exclusionary self tenders and poison pills provisions. All of these defensive tactics are built by the management of these target firms in order to protect themselves and block the takeovers. These tactics are all considered as soft tactics with no major impact upon the offer prices(Gugler, K., Mueller, D.C, Yurtoglu, B.B. & Zulehner, C. 2003). Empirical evidence and research in this area have shown that these defensive takeovers have shown to increase the wealth of the shareholders to some extent but they have not shown a direct impact in raising the share price of the target firm.

            According to one of the researches conducted by (DeAnglelo & Rice 1983) cited in (Ruback, R. 1987), there had been no evidence found for the positive reaction on the share price as a result of the amendments to the corporate charters. Moreover, an abnormal return had been found for a sample of 23 firms which had gone for poison pills provisions (Ho 1986) cited in (Ruback, R. 1987). The findings of (Dann and DeAnglelo 1986) cited in (Ruback, R. 1987), had also showed the evidence that the use of the standstill agreements had caused the stock price to reduce by -4%. One of the significant examples of this could be seen in the bid offer for Yahoo by Microsoft in 2008 with a premium of more than 60% however, the executives of Yahoo had rejected this......................

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