ANTI-TAKEOVER DEFENCES (MU)PRE-TAKEOVER DEFENCESPOST-TAKEOVER DEFENCESBUSINESS ALLIANCES

PRE-TAKEOVER DEFENCESStaggered board• The BOD comprises of 3 equal

groups of directors• Each year one group is electedSuper majority clause• A very high % of shareholders to

approve a merger

Poison pills – existing shareholders are granted the right to buy convertible bonds into equity shares in the acquiring firm in merger on very favorable terms

Dual class capitalisation – a new class of equity shareholders who enjoy superior voting rights is created

People-pill – highly valued employees threaten and leave, if it is acquired

Golden parachute – the incumbent management is entitled to receive fabulous compensation in the event of takeover

Flip –in – the current shareholders are allowed to buy more stocks at steep discount rates

POST OFFER DEFENCESGreen mail – the target co.

repurchases the shares cornered by the raider

Pac man defense – the target co. makes a counter bid for the shares of bidder

Litigation – filing case against the bidding co. for violating anti-trust laws

Asset – restructuring – the target co. sells its precious ‘crown jewels assets’

Liability – restructuring –the target co. repurchases its own shares at premium (or) issues shares to a friendly 3rd party

White-knight – To repel the raider, the target co. can appeal the friendly co. to take whole or part of the co.

Hence the friendly buyer not to dislodge the management of the target co.

White square – selling the shares of Target co. to the other co. which is not interested in takeover

HOSTILE TAKEOVER STRATEGIES

Street sweep – the acquirer accumulates huge stock before making an open offer, hence the target co. will not have any choice

Bear Hug – the acquirer puts on the management by threatening to make open offer. It will make to take over control straightaway

Strategic Alliance – by offering partnership and assert control over target co.

Brand power – buy the powerful brands and make the target co. weaker

Proxy Fight – the acquirer tries to convince the current shareholders to vote out the current management or BOD in favour of a tem that will approve the takeover

HP takeover of Compaq • Huge sums paid to the directors• Fight within the company• 51% favoured the co.

ANTI-TAKEOVER DEFENCES IN INDIA

Make preferential allotment to promoter group

Effect of creeping enhancementsAmalgamate group companiesSell the crown jewelsSearch for a white knight

BUSINESS ALLIANCES - FORMSJoint ventures• Is an independent entity formed

by two or more companies to undertake financial activity together

• Project based joint venture• The JV entered into by the

companies in order to achieve a specific task is known as project based JV

FORMS OF ALLIANCES• Functional based JV – the JV

entered into by the companies in order to achieve mutual benefit

Reliance Retail – Marks & Spencers

Tata Indicom – Virgin mobile Nissan Motors – Ashok Leyland

Limited Volvo – Eicher Motors Walmart – Bharathi Enterprises

COMPANIES INVESTMENT OUTCOMES

NISSAN MOTORS & ASHOK LEYLAND LTD

50 : 50 LIGHT COMMERCIAL VEHICLE (1.25 TON PAYLOAD CAPACITY)

VOLVO & EICHER MOTORS

VOLVO INVESTMENT - $ 375 million

COMMERCIAL VEHICLES MARKET

WALMART & BHARATHI ENTERPRISES

50 : 50 WHOLE SALE CASH-A ND-CARRY BUSINESS IN INDIA ( INCLUDES SUPPLY CHAIN AND BACK END LOGISTICS)

FORMS OF ALLIANCES….Strategic Alliance• Any agreement between two or

more parties to collaborate with each other to achieve certain objectives while remain as independent organisations

STRATEGIC ALLIANCESAREA COMPANIES NATURE OF

DEALS

R & D MICROSOFT AND NOKIA

A SOFTWARE PARTNERSHIP FOR NOKIA’S WINDOWS PHONES

MANUFACTURE CHRYSLER & FIAT

GSK & Dr.REDDY’S LABS

PARTNERSHIP TO BUILD COMPACT AND SUB-COMPACT JEEPS.MANUFACTURE NEARLY 100 PRODUCTS UNDER GSK BRAND IN EMERGING MARKETS

MARKETING PFIZER & BIOCON BIOCON’S INSULIN BIOSIMILAR PRODUCTS IN WORLD MARKETS

EQUITY ALLIANCES DAIMLER & MITSUBISHI

34% STAKE IN MITSUBISHI

FORMS OF ALLIANCES….Licensing –• Licensing specific technology,

product and process• Licensing trademark or copyrightsFranchising alliances• Grant rights to sell goods to multiple

licenseesNetwork alliances • In one market – competitor;• In other market - collaborate

REASONS FOR ALLIANCESSharing risks and resources (high

technology industries – high risk – high cost)

Access to New markets – high cost ( advertisement, promotion, warehousing and distribution)

Cost reduction – joint manufacturing operations

Favourable regulatory treatmentPrelude to acquisition or exit