TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 %...
-
date post
20-Dec-2015 -
Category
Documents
-
view
213 -
download
0
Transcript of TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 %...
![Page 1: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/1.jpg)
TAKEOVERS
6th set of transparencies for ToCF
![Page 2: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/2.jpg)
2
Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies?
(workers, consumers,...)
Market for corporate control
US merger mania in 80’s.
Europe: 2000 hostile takeover of Mannesmann.
2001: Germany opposes EU proposed directive to stop managements from
using poison pills.
Response to failure of internal control (“if current management fails to maximize
investor value, takeover will replace management”)?
![Page 3: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/3.jpg)
3
– greenmail (targeted repurchases
raider stock price falls)– poison pills– restrictions on inalienability of stocks
(need approval of board)
– staggered boards– supermajority amendments– fair-price amendments– dual class votes– threat of litigation
Golden parachutes Takeover defenses:
![Page 4: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/4.jpg)
4
PURE THEORY OF TAKEOVERSI.
Future appearance of unknown raider who values firm more
otherwise: option(Verizon/Genuity, DB)
Reasons for takeovers:
Raider appears
takeover
No takeover value v to investors incumbent gets w
Example
Possibly: investments by entrepreneur raider
Initial investment,borrowsI-A
good idea, better fit,...,
synergy with other firm,
private benefit from control.
![Page 5: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/5.jpg)
5
EXTRACTING RAIDER SURPLUS:
TAKEOVER DEFENSES AS MONOPOLY PRICING
In tradition of Diamond - Maskin 1979
Aghion - Bolton 1987
Raider not credit constrained
known, but density
Point: future buyers not at the table initially
{initial investors, entrepreneur} pair has monopoly power over
sale.
Assumptions can pay
A large entrepreneur not credit constrained
![Page 6: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/6.jpg)
6
Suppose can commit to sale price P
can commit to cutoff
or
![Page 7: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/7.jpg)
7
But “can’t commit” : see later.
INCENTIVE TO PREPARE RAID
Cost c of acquiring information: For cutoff
INCUMBENT ENTREPRENEUR CREDIT CONSTRAINED
where
may lead to reduction in
![Page 8: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/8.jpg)
8
If (1) satisfied for no change.
Otherwise ( A small )
(a)
(b)
NPV-pledgeable income tradeoff once again
shadow price of (1)
![Page 9: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/9.jpg)
9
Observation: package sale not optimal, partial sale = metering device.
UNKNOWN VALUE ENHANCEMENT
( with measurable ex post)
Example:
no credit constraint.
and independent.
Thought experiment: known:
![Page 10: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/10.jpg)
10
keep 50% of shares,
charge P for block,
unknown:
purchases iff
![Page 11: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/11.jpg)
11
POSITIVE THEORYII.
Looks at common institutions likelihood of takeover.
Suppose • single bidder
• tender offer restricted or not (# of shares)
conditional or not (on majority stake).
Suppose • equal voting rights
• needs fraction to take control (to deliver and ).
Def: INVESTOR VALUE ENHANCING RAIDER:
INVESTOR VALUE DECREASING RAIDER:
![Page 12: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/12.jpg)
12
VALUE ENHANCING RAIDER: (Grossman-Hart 1980)
Continuum of shareholders.
Unrestricted, unconditional offer
probability of success
suppose then better off holding on to share:
(in the absence of private benefit from control: ).
![Page 13: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/13.jpg)
13
raidersurplus
Dilution : can dilute fraction of gains made by shareholders who have not tendered – if gains control
positive
If private benefit from control
Toehold:
if
and
![Page 14: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/14.jpg)
14
TAKEOVER DEFENSES
Assuming (otherwise no takeover)
Example: flip-over plan (holders of shares are allowed to purchase new nonvoting shares at substantial discount after a hostile takeover)
shares kept (50%) worth
shares acquired (50%) worth
![Page 15: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/15.jpg)
15
PIVOTAL TENDERING(Bagnoli-Lipman 1988, Holmström-Nalebuff 1992, Gromb 1995)
(a) CONDITIONAL OFFER (+ UNRESTRICTED)
(b) NO CONDITIONAL OFFER
n shares, cash flow right 1/n.
P = raider gets (entire surplus)
1 share / shareholder
Wlog: raider does not bid for B-shares (“no trade”).
A-shares: mixed strategy equilibrium (others, e.g., “k tender; others don’t”)
Shareholder i = m-i shares tendered by others.
Also A-shareholders get each.
a n have voting right k a needed for control
![Page 16: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/16.jpg)
16
Expected value enhancement on voting shares:
![Page 17: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/17.jpg)
17
For a large, can show (GH)
Intuition
Want one share-all votes!
very unlikely
![Page 18: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/18.jpg)
18
divide each share into N shares ( aN voting shares, kN needed for
majority )
# of shares tendereda
tenders for sure don’t tenderrandomizes on only one share
0 N
Multiple shares / shareholders:
a shareholders support of distribution at most a. If bounded away from 1, then can make sure takeover succeeds by tendering a more shares
extra profit on inframarginal shares.
![Page 19: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/19.jpg)
19
Discussion
Noise is here endogenous (mixed strategy). Introduction of exogenous noise (e.g., Segal 1999: pr (a shareholder cannot respond to offer) = ) resurrects Grossman and Hart's free-riding result. Each shareholder is too unlikely to be pivotal.
Segal's other argument: even if shareholder turns out to be pivotal, discontinuity posited by model overpredicts impact: intensity of monitoring, shareholders' payoff under managerial authority, etc. move more continuously. Furthermore, share acquisition may occur over time.
![Page 20: TAKEOVERS 6th set of transparencies for ToCF. 2 Gains: target shareholders 30% acquiring co 0 % (hubris? free riding?...) other constituencies? (workers,](https://reader030.fdocuments.us/reader030/viewer/2022032704/56649d485503460f94a24383/html5/thumbnails/20.jpg)
20
VALUE DECREASING RAIDER
DS to tender
coordination problem
Coordination or unanimity rule will do.But does not capture
Suppose A shares
B shares (no interest to raiders).
ONE-SHARE-ONE VOTE
Would like raider to buy as many shares as possible: