COMSATS INSTITUTE OF INFORMATION TECHNOLOGY, ISLAMABAD

PROJECT REPORT OF FINANCIAL DECISION MAKING

Submitted by: Nouman Ajmal(GL) SP13-MBA-052

Adeel Ghazi Khan SP13-MBA-003

Hyder Ayub SP13-MBA-082

Danial Ahmed SP13-MBA-013

Aqib Bashir SP13-MBA-001

Fahad Azhar SP13-MBA-018

Abdul mannan SP13-MBA-002

Mohsin Raza SP13-MBA-035

Akhtar Ali SP13-MBA-004

Ishtiaq Mir SP13-MBA-025

Abubakar Qureshi SP13-MBA-037

Submitted to: SIR KAMAL MUSTAFA

SUMMARY OF WORK DONE

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Question 1

Nouman Ajmal(GL)

Adeel Ghazi Khan

Question 2

Danial ahmed

Abdul mannan

Question 3

Hyder ayub

Mohsin Raza

Question 4

Fahad Azhar

Aqib Bashir

Question 5

Akhtar Ali

Abubakar Qureshi

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ContentsMeanings of growth:................................................................................................................................................3

Difference between internal and external growth:..................................................................................................3

External growth frequently preferred:.....................................................................................................................3

Difference between merger and consolidation:.......................................................................................................5

How many ways can each occur?.............................................................................................................................5

When consolidation is preferred:.............................................................................................................................6

Horizontal Merger....................................................................................................................................................7

Horizontal Merger Benefits..................................................................................................................................7

Vertical Merger........................................................................................................................................................7

Vertical Merger Benefits.......................................................................................................................................8

Conglomerate merger:.............................................................................................................................................8

Strategic Fit..........................................................................................................................................................9

Dilutive acquisition.................................................................................................................................................13

TYPES..................................................................................................................................................................13

AFFECT................................................................................................................................................................14

Takeovers...............................................................................................................................................................15

Takeover Defenses.................................................................................................................................................16

Why management want to resist?.........................................................................................................................18

References..............................................................................................................................................................19

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Q1: What are the different meanings of the word growth? What is the difference between internal and external? Why is external growth frequently preferred by large firms?

Meanings of growth: The process of developing physically, mentally, or spiritually The process of increasing in amount, value, or importance Increase in economic activity or value The process of increasing in size

Difference between internal and external growth:INTERNAL GROWTH:

Increasing existing production capacity through investment in new capital & technology Development & launch of new products Finding new markets for example by exporting into emerging countries Growing a customer base through marketing

EXTERNAL GROWTH:

Faster speed of access to new product or market areas Increased market share, increased market power Access internal economies of scale Secure better distribution channels, control of supplies Acquire intangible assets (brands, patents, trademarks) Overcome barriers to entry to target new markets Defend a business against a takeover threat Enter new segments of an existing market To take advantage of deregulation in an industry, market

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External growth frequently preferred: External growth strategies typically involve mergers or acquisitions. Unlike internal growth strategies, in which funds are reinvested in the business to expand

output or demand External growth strategies use corporate funds to purchase other companies. This is, obviously, a much faster route to expand a business than an internal growth strategy,

but it’s also riskier.

There are few strategies involve in the external growth and on the bases of these strategies the external growth mostly preferred in large business.

Form strategic alliances Offer your business as a franchise or business opportunity License your product Expand your product range Diversify your offering Expand your customer base Mergers and acquisitions International expansion

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Q2: What is the difference between merger and consolidation? How many ways can each occur? When a consolidation is preferred over a merger?

Difference between merger and consolidation:Merger: A contractual and statutory process by which one corporation (the surviving corporation) acquires all of the assets and liabilities of another corporation (the merged corporation), causing the merged corporation to become defunct. As part of the merger process, the shareholders of the merged corporation receive

(i) Payment for their shares and/or(ii) Shares in the surviving corporation.

Conceptually, it looks like this: A +B= A (where A is the surviving corporation and B was the merged corporation.) Consolidation: A contractual and statutory process by which

1. two or more corporations jointly become a completely new corporation (the successor corporation),

2. The original corporations cease to exist and to do business, and3. The successor corporation acquires all of the assets and liabilities of the original (now defunct)

corporations. Conceptually, it looks like A + B = C (here, distinct companies A and B consolidate into a new company, C)

How many ways can each occur? The first step is for the board of directors of the corporation to approve the plan of merger, consolidation, or share exchange. The plan must set forth the terms and conditions of the proposed transaction.

After the board of directors approves the plan, it generally has to be submitted to the corporation’s shareholders for their approval. The shareholders of a merged or consolidating corporation must always approve. The shareholders of the corporation that survives a merger must approve if the merger will significantly affect their ownership interests. A share exchange must be approved by the shareholders of the corporation whose shares are being exchanged. Most statutes provide that a majority vote is needed to approve a merger, consolidation, or share exchange, unless otherwise provided in the articles of incorporation.

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After shareholder approval has been obtained, articles of merger, consolidation, must be filed with the appropriate state official. The state’s corporation law will set forth the information the articles must contain. Generally, the articles must either contain the plan of merger, consolidation, that the plan is being kept at an office of the survivor or include the address and a statement that it will be made available to shareholders of the constituents. The articles also generally include the number of shares entitled to vote, and the number of votes cast for and against the plan.

Any merger or consolidation is governed by the laws of one (or more) of the states, each of which sets forth its own procedural requirements. However, in general:

The boards of directors of each (original) corporation involved in the proposed transaction must approve the merger or consolidation plan;

The shareholders of each (original) corporation involved in the proposed transaction must, thereafter, approve the merger or consolidation plan by vote at a called or scheduled shareholder's meeting;

The approved plan must be filed with the appropriate state official(s); and

Once all state-law formalities have been satisfied, the state will issue, as appropriate, a certificate of merger to the surviving corporation or a certificate of consolidation to the successor corporation.

When consolidation is preferred:A consolidation may be selected when the merging association does not want one or the other to be surviving entity. Usually this determination is made for political or pride reasons but the difference is not legally significant. A merger is generally simple and easier and more favorable from a tax exemption perspective

Under most state law both merger and consolidation require that each corporation board of director approve a merger proposal (called a plan or agreement of merger /consolidation) and send it to the respective voting member. With approval generally require be the voting member present in person or by proxy (if permitted) at a meeting called upon proper notice and at which there is a quorum.

consolidation is usually preferable because by operation of law the merging the consolidation corporation automatically are combined and all asset liabilities membership contracts copy right trademark and all other aspect of the corporation are simply assumed by the surviving or new corporation according to the plan of new merger or consolidation. The old corporation are essentially become part of the surviving or new corporation and any future payments debts or transfer to the old simply go to the new.

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Q3: What Is a Horizontal Merger and a Vertical Merger?

Horizontal and vertical mergers are two strategies your company can use to achieve specific objectives, such as growing your business, entering new markets, increasing revenue or reducing costs. A merger combines two companies with the aim of giving both a stronger competitive advantage. Horizontal and vertical mergers are alternatives to making internal investments and may help you achieve your objectives in a shorter time and at lower cost.

Horizontal MergerA horizontal merger takes place when two companies offering similar, or compatible, products or services to the same market combine under single ownership. If the other company sells products similar to yours, your combined sales give you a greater share of the market. If the other company manufactures products complementary to your range, you can now offer a wider range of products to your customers. A merger with a company that offers different products to a different sector of the market enables you to diversify your activities and enter new markets.

Horizontal Merger BenefitsThe main aim of a horizontal merger is to increase revenue by offering an additional range of products to your existing customers. You do not have to invest time or resources in developing your own new products. You may be able to sell to different geographical territories if the other company has distribution facilities or customers in areas you do not currently cover. Horizontal mergers can also help you reduce the threat of competition in your market. The new merged company may have greater resources and market share than your other competitors, enabling you to achieve economies of scale and exercise greater control over pricing.

Vertical MergerThe main aim of a vertical merger is not to increase revenue, but to improve efficiency or reduce costs. A vertical merger takes place when two companies that previously sold to or bought from each other combine under single ownership. The companies are generally at different stages of production. A manufacturer may decide to merge with a supplier of important components or raw materials, for example, or with a distributor or retailer that sells its products.

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Vertical Merger BenefitsVertical mergers can help you secure access to important supplies. They also help to reduce your overall costs by eliminating the costs of finding suppliers, negotiating deals and paying full market prices. Vertical mergers can improve your efficiency by synchronizing production and supply between the two companies and ensuring that supplies are available when you need them. This type of merger can also help you deal with competitors. By making it difficult for competitors to obtain important supplies, you can weaken existing competitors and increase barriers to the entry of new competitors.

Conglomerate merger:

A conglomerate merger is "any merger that is not horizontal or vertical; in general, it is the combination of firms in different industries or firms operating in different geographic areas". Conglomerate mergers can serve various purposes, including extending corporate territories and extending a product range. One example of a conglomerate merger was the merger between the Walt Disney Company and the American Broadcasting Company.Because a conglomerate merger is one between two strategically unrelated firms, it is unlikely that the economic benefits will be generated for the target or the bidder. As such, conglomerate mergers seldom occur today. However, conglomerate mergers were popular in the U.S. in the 1960s and 1970s. Many conglomerate mergers are divested shortly after they are completed.

Conglomerate mergers involve the combination of corporations involved in business activities that are completely unrelated.

The two types of conglomerate merger further define the goal of the merger:

Pure conglomerate merger – the parties have absolutely nothing in common Mixed conglomerate merger – the parties seek to expand their market regions, or to extend

their product offerings

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3(A) what is pyramiding? How are the dividends taxed in a pyramid?

The United States subjects dividends to double taxation. That is, it taxes dividends once as part of the payer’s corporate income and again as part of the recipient’s individual income. Until 2003, dividends were taxed at the same rates as ordinary corporate and individual income. This resulted in overall taxes on dividends much higher than those in most other countries. The Job Growth and Taxpayer Relief Reconciliation Act of 2003 (2003 Reform) cut the individual tax rate on dividend income to fifteen percent. Dividends paid are still taxed at the same rate as other corporate income. Nonetheless, the overall tax levy on dividends in the United States fell sharply. Recent work shows that the primary economic purpose of dividends is to remove funds from companies that would otherwise invest them poorly. Dividends reflect good governance. Firms pay higher dividends in countries that provide stronger legal rights to shareholders. Traditional theories about dividends and dividend taxation remain valid, and are usefully recast in this light.

3(B) Factors to look before suitable Acquisition

Strategic FitOne of the key concepts associated with mergers and acquisitions is strategic fit. Companies operating in the same sector must have some degree of alignment in terms of competitive situation, strategy, organizational culture and leadership style. Greater overlap of these elements between organizations creates a more conducive environment for merging two separate companies into a single entity. Although many factors play into these alignments, company leadership spearheads these elements and, therefore, contributes the greatest influence among them.

Market Share and Branding

Fierce protectiveness over market share exists between competitors operating within the same sector. When the opportunity to combine operations presents itself, however, company leaders see a probable growth in market share on the horizon. Whether combining operations turns out to be as profitable as hopeful numbers project, however, depends on how well the merger or acquisition is executed. Included here is the idea of branding and how customers perceive the new, larger company and whether customer loyalty transfers to the new entity.

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Check your own liquidity and financial health

Before you enter any transaction, says Burmeister, determine if you have the financial wherewithal by performing a thorough financial health check. “Since the recession, most organizations have shifted their focus away from profit and loss statements and towards liquidity,” he says. That means asking if you have enough liquidity to carry off a transaction successfully. Once you determine if you have the liquidity to make and sustain an investment, then ask if your capital structure can bear the added strain. “If not, assess a range of debt and equity capital funding strategies that will give you the balance sheet you need to be successful in the M&A game,” says Burmeister.

Make sure your people can see clearly

Before closing a deal, Burmeister says, you’ll also want to ensure you have a team in place with the experience to assess a transaction, complete an investment, forecast its performance and tolerate sensitivities around the results. “The ability to envision and solve the challenges (financial and organizational) you will face in integrating the transaction and creating a smoothly functioning new company will be absolutely key,” he says. “If not, consider bringing in temporary, specialized executive leadership to help you through. In all, you must be dead sure that the projected benefits, synergies and savings from the transaction can be realized in fact.”

Define your goals and success factors

In putting together your M&A strategy, you should analyze both your competitive position as well as your future objectives. “That means understanding what you’re doing with your business, where you want to go and what you value most,” says Burmeister. “That means making sure you understand what it is you are trying to gain through this transaction.” To do that, start by answering the following questions.

Is your goal to increase market share?

Do you want to enter markets contiguous to the ones you already play in?

Do you want to acquire new products, processes and intellectual capital?

Do you want to increase your economies of scale so that you can be the low-cost company in your market?

Perhaps you are trying to eliminate a competitor, expand a product line or achieve a vertical integration?

“Regardless of your goals,” says Burmeister, “you should focus on them relentlessly throughout the process and align your decisions with them. The acquisition should be a way to bridge the gap between

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your company’s current state and the future state you desire for it. These factors become the items to test for in screening prospective targets and then performing due diligence."

Consider M&A candidates

Now that you know what you want out of a merger or acquisition, it’s time to begin the search for the right fit. But what factors should come into your screening process? “One is integration feasibility, meaning: What are the organizational and operational challenges of integrating them?” says Burmeister. “For example, which of the key people would you want to keep, and would they stay? Another integral step in evaluating targets is developing revenue and cost models for the combined organization. Define key success factors to realize value along with “threshold” assumptions and a business forecast to understand what you must achieve for the acquisition to be successful.”

Burmeister also suggests that as you search for candidates, do your best to avoid becoming too fixed on a particular company. That means keeping your eyes open to potential roadblocks as much as the benefits of a target or, “you may face a surprise and fail to recognize the value you are seeking,” says Burmeister.

Plan and execute due diligence

When it comes time to evaluate a potential deal, you’ll need to do more than just some simple math or even an “audit lite.” “When done properly, due diligence should test the strategic fit of the acquisition,” says Burmeister. “Start by considering your goals for this acquisition and the drivers of the valuation. Knowing what you need to preserve will dictate what you need to test for in due diligence. Your overriding goal is to verify that the value you expect is actually there. It encompasses financial, operational, legal, technology and people due diligence.” Burmeister also warns that you shouldn’t neglect conducting due diligence on the target’s customers, specifically understanding what cements those relationships and how to sustain them once the acquisition goes through.

Create a transition team

“Major transitions require strong leadership; it sets the tone for savings and efficiencies,” says Burmeister. “That’s why it is critical to create a transition steering committee and a functional team.” Burmeister says these groups, which must include line managers who are close to the action, should engage leaders from both sides of the acquisition and they should set their expectations high and work from a well-defined work plan, revisiting it as conditions on the ground change.

Carefully plan and perform the integration

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When it’s finally time to merge the operations, processes and cultures of the two companies, you should, “focus on revalidating all of the plans you have developed since the deal was first considered,” says Burmeister. “Remember, this is an iterative process: Evaluate what drives value, what is working and what is not. And throughout, remember speed is critical at this stage; delay drives failure and may cost you key people. This is the time to sweat the small stuff, like being sure that acquired employees know how to enter expense reports and check their benefits.”

Other tips for ensuring a smooth transition include establishing milestones and creating incentives plans tied to their completion. “Drive the integration deep into the organization, holding managers responsible for successful execution of each,” says Burmeister. “Remember, value is not made when you sign the deal; it is made during integration. More deals fail due to poor integration than any other factor, so begin planning as soon as the target is identified. Develop your plans according to function and accountability and concentrate on those issues raised during due diligence that threaten your ability to realize value.”

The four C's

In doing your best to ensure that your M&A transaction fulfills all the goals and objectives you have hoped, Burmeister suggests using the “Four Cs” to keep you on target:

Compensate: If you want existing management to stay, make their targets achievable and compensate appropriately.

Communicate: People on both sides of the transaction should be completely aware of what’s going on to help quell rumors and paranoia. People will respond to uncertainty by assuming the worst.

Care: How you react to challenges can make all of the difference. Even small inconveniences can generate ill feelings. Respond quickly and completely.

Cull: If you must say goodbye to any members of management, make your decisions quickly, but carefully.

Q4: How does the price earnings ratio affect a dilution of earnings in an acquisition?

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Dilutive acquisition A takeover transaction that will decrease the acquirer's earnings per share (EPS) if additional shares are issued to pay for the acquisition. Dilutive acquisitions decrease shareholder value and should thus be avoided, unless the strategic value of the acquisition is expected to cause a sufficient increase in EPS in later years. An acquisition is only a good deal if the acquirer can derive more value from the acquisition than it pays out.

TYPES

An acquisition is accretive when the combined (pro forma) EPS is greater than the acquirer’s

standalone EPS. For example, suppose analysts expect Procter & Gamble’s EPS to be $3.05 next year.

You are a banker charged with the task of modeling the impact to Procter & Gamble’s EPS if they were

to acquire Colgate-Palmolive. So you build your model and determine that the pro forma EPS next year

would actually be $3.10 – $0.05 higher than had the acquisition not taken place. In other words, the

deal would be $0.05 accretive next year.

An acquisition is dilutive if the opposite is determined: that pro forma EPS would be lower than $3.05 A

deal is considered breakeven when there is virtually no impact to the EPS.

Accretion: When pro forma EPS > Acquirer’s EPS

Dilution: When pro forma EPS < Acquirer’s EPS

Breakeven: No impact on Acquirer’s EPS

AFFECTHigher EPS will always translate into higher price, making accretive deals good for acquiring company stockholders. But it is not, and you can see the rationale by looking at all of the scenarios listed below: 1. If you are buying a company with a lower PE ratio than yours, there is usually a good reason why that company has the lower PE. It could be that the firm is riskier than average, has lower or no growth or is in a business with sub-standard returns. If any or all of these reasons hold, acquiring this company will bring those problems into the combined company and cause the PE ratio for the

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combined company to fall. If that drop exceeds the increase in EPS, the stock price of the combined company will also fall, notwithstanding the accretive nature of the deal. 2. If you are funding a deal with cash, the deal will almost always be accretive because the income you are generating from cash (especially at today’s low interest rates) will generally be lower than the equity earnings you will get from the company that you are acquiring. But is that value enhancing? Not really. Replacing an investment that generates 1% riskless today with a risky investment that generates a 4% return will make investors in the company worse off, not better. 3. If you are financing the deal with debt, the deal will be accretive if the equity earnings that you generate from the acquired company exceed the interest expense. But here again, that is not a sufficient condition for value creation. You are contractually committed to make the interest expense, while the income you anticipate is “risky”. The basic tenets of the risk/reward trade off will require a much higher risky equity return than the interest rate on the debt you take on for the deal to be value creating. Using the same type of reasoning, you can see that it is possible for a dilutive deal to be value creating: the target firm may have higher growth/higher quality growth/lower risk than you do and acquiring it may push up the combined firm’s PE and/or there may be enough growth in the firm that even though the current earnings don’t cover your interest expenses/foregone interest income, the future earnings will comfortably. It is therefore entirely possible for an accretive deal to be value destroying and a dilutive deal to be value increasing.

AFFECT ON MARKET PRICEWhile a company's EPS will often influence the market price of its stock, the relationship is rarely inverse. The company's EPS is determined by dividing the earnings by the number of outstanding shares. The market price of each share is immaterial. For example, a company might have 1 million shares of stock outstanding. If that company earns $1 million dollars, its EPS is $1. It doesn't matter if the market price for the stock is $10 per share or $100 per share.

Price changes resulting from an earnings surprise can be felt immediately. Studies indicate that the stock prices of firms with significant positive earnings surprises show above-average performance, while those with negative surprises have below-average performance.

Although the surprise has an immediate impact on the stock’s price, it may also have a long-term effect. In fact, studies indicate that the effect can persist for as long as a year after the announcement.

Q5: what are the some ways to approach takeovers of another firm? How may a firm resist a takeover attempt? Why would management want to resist?

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TakeoversIn business, a takeover is the purchase of one company (the target) by another (the acquirer, or bidder). In UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange.

Following are the some ways of takeovers

A "friendly takeover" is an acquisition which is approved by the management. Before a bidder makes an offer for another company, it usually first informs the company's board of directors. In an ideal world, if the board feels that accepting the offer serves the shareholders better than rejecting it, it recommends the offer be accepted by the shareholders.

A "hostile takeover" allows a bidder to take over a target company whose management is unwilling to agree to a merger or takeover. A takeover is considered "hostile" if the target company's board rejects the offer, and if the bidder continues to pursue it or the bidder makes the offer directly after having announced its firm intention to make an offer.

A "reverse takeover" is a type of takeover where a private company acquires a public company. This is usually done at the instigation of the larger, private company, the purpose being for the private company to effectively float itself while avoiding some of the expense and time involved in a conventional IPO.

A "backflip takeover" is any sort of takeover in which the acquiring company turns itself into a subsidiary of the purchased company. This type of takeover can occur when a larger but less well-known company purchases a struggling company with a very well-known brand. Examples include:

The SBC takeover of the ailing AT&T and subsequent rename to AT&T.

Takeover Defenses Following are the tactics used to resist a takeover

Poison Pill Defense

The first poison pill defense was used in 1982, when New York lawyer Martin Lipton unveiled a warrant dividend plan; these defenses are more commonly known as shareholders' rights plans. This defense is

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controversial, and many countries have limited its application. To execute a poison pill, the targeted company dilutes its shares in a way that the hostile bidder cannot obtain a controlling share without incurring massive expenses.

Golden Parachute

The Golden Parachute is a provision in a CEO's contract. It states that he will get a large bonus in cash or stock if the company is acquired. This makes the acquisition more expensive, and less attractive. Unfortunately, it also means that a CEO can do a terrible job of running a company, make it very attractive for someone who wants to acquire it, and receive a huge financial reward.

Shareholders Rights Plan

The most common form of takeover defense is the shareholders' rights plans, which activates at the moment a potential acquirer announces its intentions. Under such plans, shareholders can purchase additional company stock at an attractively discounted price, making it far more difficult for the corporate raider to take control.

Poison pill

While the poison pill defense may help ward off unwanted suitors, it also makes it more difficult for shareholders to profit from the announcement of a takeover. Rights issued to existing shareholders can effectively thwart a takeover by diluting the acquirer's ownership percentage, making a takeover more expensive and preventing or delaying control of the board and the company. But shareholders are often punished when their stock drops after a company adds a poison pill clause to its charter and they are unable to reap profits from a successful takeover.

Voting Rights Plans

Targeted companies may also implement a voting-rights plan, which separates certain shareholders from their full voting powers at a predetermined point. For instance, shareholders who already own 20% of a company may lose their ability to vote on such issues as the acceptance or rejection of a takeover bid.

Staggered Board of Directors

Clauses involving shareholders are not the only escape routes available to targeted companies. A staggered board of directors (B of D), in which groups of directors are elected at different times for multiyear terms, can challenge the prospective raider. The raider now has to win multiple proxy fights over time and deal with successive shareholder meetings in order to successfully take over the company. It's important to note,

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however, that such a plan holds no direct shareholder benefit.

Greenmail

A company may also pursue the greenmail option by buying back its recently acquired stock from the putative raider at a higher price in order to avoid a takeover. This technique was popular during one of the final mergers and acquisitions trends in the 1980s, and it typically comes with the requirement that the raider not pursue another takeover attempt. Because the shares must be purchased at a premium over the takeover price, this "payout" strategy is a prime example of how shareholders can lose out even while avoiding a hostile takeover. The practice was effectively curtailed in the U.S. by an amendment to the U.S. Internal Revenue Code, which applied a punishing 50% tax on greenmail profits.

White Knight

If a determined hostile bidder thwarts all defenses, a possible solution is a white knight, a strategic partner that merges with the target company to add value and increase market capitalization. Such a merger can not only deter the raider, but can also benefit shareholders in the short term, if the terms are favorable, as well as in the long term if the merger is a good strategic fit. A good example of this is the acquisition of Bear Stearns by white knight JPMorgan Chase (NYSE:JPM) in 2008. At the time of the acquisition, Bear Stearns' market cap had declined by 92% on concerns of its vulnerability to the global credit crisis at that time, making it extremely vulnerable to hostile takeover and even insolvency. Although a white knight defense is generally considered beneficial to shareholders, this is not always the case when the merger price is low or when the synergies and efficiencies of the combined entities do not materialize. (For related reading, check out Bloodletting And Knights: A Medieval Guide To Investing.)

Acquiring the Acquirer

Ironically, a takeover defense that has been successful in the past, albeit rarely, is to turn the tables on the acquirer and mount a bid to take over the raider. This requires resources and shareholder support, and it removes the possibility of activating the other defensive strategies. This strategy, called the Pac-Man defense, after Bendix Corporation's attempted to acquire Martin Marietta in 1982, very rarely benefits the shareholders. Martin Marietta defended itself by purchasing Bendix stock and sought a white knight in Allied Corporation.

Triggered Option Vesting

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A triggered stock option vesting strategy for large stakeholders in a company can be used as a defense, but it rarely benefits anyone involved because it often results in massive talent migration. Generally, the share price drops when the clause is added to the charter as executives sell off the stock and leave the company

Why management want to resist?Following are the reasons

1. Goodwill, often paid in excess for the acquisition2. Culture clashes within the two companies causes employees to be less-efficient or despondent3. Reduced competition and choice for consumers in oligopoly markets (Bad for consumers,

although this is good for the companies involved in the takeover)4. Likelihood of job cuts5. Cultural integration/conflict with new management6. Hidden liabilities of target entity7. The monetary cost to the company8. Lack of motivation for employees in the company being bought.

Takeovers also tend to substitute debt for equity. In a sense, any government tax policy of allowing for deduction of interest expenses but not of dividends, has essentially provided a substantial subsidy to takeovers. It can punish more-conservative or prudent management that do not allow their companies to leverage themselves into a high-risk position. High leverage will lead to high profits if circumstances go well, but can lead to catastrophic failure if circumstances do not go favorably. This can create substantial negative externalities for governments, employees, suppliers and other stakeholders.

Referenceshttps://en.wikipedia.org/wiki/Conglomerate_merger

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http://legaldictionary.net/conglomerate-merger/

http://smallbusiness.chron.com/horizontal-merger-vertical-merger-60981.html

https://www.americanexpress.com/us/small-business/openforum/articles/7-steps-to-a-successful-ma-a-small-business-guide/

http://www.shsu.edu/klett/MERGER%20ch%2036%20new.htm

http://people.stern.nyu.edu/byeung/dividend_taxation.pdf

https://en.wikipedia.org/wiki/Takeover

http://www.investopedia.com/articles/stocks/08/corporate-takeover-defense.asp

http://www.investopedia.com/terms/d/dilutiveacquisition.asp

http://aswathdamodaran.blogspot.com/2012/12/acquisition-accounting-i-accretive.html

http://www.digischool.co.uk/homework/year-13/economics/difference-between-internal-and-external-growth-strategies-7844.html

http://www.merriam-webster.com/dictionary/growth

http://www.investopedia.com/articles/investing/080113/income-value-and-growth-stocks.asp

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