- Chapter 19.PPT

?2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - - - - - - - - Chapter 19 - - - - - - - - Takeover Defenses Introduction Not all mergers are welcome Arsenals of devices were developed to defend against unwelcome proposals during the 1980s Possible motivations for takeover defenses Target is resisting to get a better price Management of target judges that company will perform better on its own Management is seeking to entrench itself Strategic Perspectives Management and board of company must continuously reassess competitive environment All forms of MA activities may impact firm both as threats and opportunities Main developments in industry Opportunities for adding critical capabilities to participate in attractive growth areas Opportunities for rolling-up fragmented industries into stronger firms Likelihood of firm to be rolled-up Improving or deteriorating sales to capacity relationships in industry Impact of consolidating mergers on capacity and cost structure Enhanced capabilities of competitors as a result of their merger activity Preemptive moves Responses to takeover bids Financial Defensive Measures Efficiency One view: Highly efficient firms with favorable sales growth and high profitability margins provide defense against takeovers Alternative view: Highly efficient firms become good takeover targets Bidder firm seeks to learn from efficiencies of target Target firm may be viewed as undervalued Financial characteristics that make a firm vulnerable to takeover Low stock price in relation to replacement cost of assets or potential earning power (low q-ratio) Highly liquid balance sheet with large amounts of excess cash, valuable securities portfolio, and significant unused debt capacity Good cash flows relative to current stock prices; low P/EPS ratios Subsidiaries or properties that could be sold off without significantly impairing cash flows Relatively small stockholdings under control of incumbent