Managing the Organization

Project

On

Crisis Management

In

Hostile takeover attempt in Proptech Company

Rahul Jaju
18125671

MSc Data Analytics-2019/20

Submitted to Victor Del Rosal

1
Decision Tree

2
3
 Essay

Ryan Lewis is the Vice President of Sales at Buildium which is an American property
management company. The Proptech company has its own real-estate management tool
which allows different real estate professionals to manage property portfolios which also
includes various operations like leasing and accounting. It provides all real estate software
solutions.
Recently, the company faced an attempt of hostile takeover by another leading company L&T
by acquiring a majority interest in the stocks of Buildium on the open market. Moreover, the
company has made a bid for this acquisition. Thereafter, Ryan Lewis analyses the overall
situation and calls out for a general meeting with all the stakeholders and also with
company’s Board of Directors to discuss it with them. The board further discuss, if the
takeover could be friendly or hostile. And if it is hostile then do the company has any strategy
for conducting this kind of takeover.
Being the vice president, Ryan also gets completely intervene in the meeting as the takeover
situation can completely stumble up the company’s future. Share holders play a very
important role in any kind of acquisition. They are the deciding factor of the company’s
future. The shareholders agreement is also looked into. The agreement is used to understand
the rights and conduct of members through a variety of situations and dealings. The majority
principle works here as well. If majority of the shareholders (51 percent) supports that and
are ready to sell off their stocks to L&T at a price higher than the market value then
undoubtedly company will be assimilated. Generally, this takeover will be treated as ‘Hostile’
if Buildium rejects the offer, but the purchaser makes the offer without notifying the
company’s board in advance.
Later, if the shareholders who are ready to sell their stocks be persuaded and prevent the
company from being bided. And also, even if they are persuaded, can it lead to any kind of
proxy fights. In a proxy fight L&T will try to persuade enough shareholders to sell their stocks,
typically a majority which will replace the existing management people with a new one that
will approve the takeover. So, even if there is a proxy fight what is more important is the
outcome of it. As, it can lead to total takeover of company and with it there can be total
change in management as well. The takeover will be only considered as a hostile if the
management or shareholders opposes for this. And a friendly take over is with the will of
shareholders. Many a times, this kind of takeover is meant to replace the inefficient
management. Also, there are cases where the takeover is to get hold of the existing
management as they are very competent and that’s where the interest of the target company
lies.
There is always a motive for the acquirer company and that is always defined in the corporate
agendas. These agendas are always accomplished through acquisition. The basic idea is to

4
combine the business in order to expand themselves in the corporate world. Other possible
purpose can be for market expansion and strategy.
Having a right defence strategy is equally important if Buildium do not want this takeover.
Precautionary measures can help to reduce the probability of this takeover to a greater
extent. There are two major classes of takeover defence; Preventive and Active measures.
Preventive measures are planned to reduce the possibility of monetarily effective hostile
takeover whereas Active measures are always deployed after a proposal (bid) has been
already attempted. The action of implementing these measures again lies in interests of
stakeholders.
The Board of directors also realises that having an Early Warning Systems is equally important
for monitoring dispersal of shares of the company and the market trading patterns of shares.
Certain business charter variations like presence of supermajority, fair price provisions and
twin capitalization. Staggered board amendments are another kind of defence strategy
where board of directors’ terms are such that only a limited (one-third of the total directors)
may be voted during a given year. It also needs the approval of the shareholders before they
can be instigated. Although, directors which are classified ones cannot be uninvolved before
their term expires. The provision of Fair price is modifications of company’s charter that will
necessitates L&T to pay minority stockholders a price greater than the market value. It is a
not a strong takeover resistance. Implementing twin capitalization restructures the equity
into stocks with two classes and which have got diverse voting rights.
Strategies like poison pills can also prove to be very effective to prevent the acquisition. It is
a strategy used to depress takeovers which are hostile. By executing a poison pill, Buildium
will attempt to make its shares less appealing to L&T. It is designed to weak the governing
power of the acquirer company. Using this strategy Ryan can also issue more shares. When
there is a bidding, the stakeholders, other than the L&T, will get higher voting rights.
Alternatively, Buildium’s shareholders might obtain securities with voting rights that can add
more value over the period of time. Voting tactics are framed in such a way that will stop
anyone outside from gaining control of the corporation. Recapitalization of structure can also
be attempted where Ryan can also initiate several changes in its company’s financial
structure in an effort to ward off the bidder. This can also be done by considering more debts
and also by issuing more stocks. Buying back shares can be also be an important aspect when
it comes to recapitalization of market.
Being the Vice President, Ryan is completely engaged with the other board of directors on
getting regular updates of the takeover situation so that even his leadership remains up-to-
date. In the end, there can be different results of all decisions whether the takeover can be
hostile to the Buildium’s present management.

5
 Possible Outcomes

Good Outcomes:
1. The first scenario when Ryan calls out for a meeting with shareholders to check if there
is a super majority provision in the company. But even if there is such provision in the
company can there be a future chance of them to be persuaded by the acquirer
company. If they cannot be persuaded at all then there would be no takeover of the
company as the shareholders are totally against this.

2. Another thing discussed in the meeting with Board of directors is the existence of any
offer made by the acquirer to take over the company. If the proposed offer is more
than the market value of the company then definitely it would increase the market
value of the company and also its shares in the market. This kind of takeover is a
friendly takeover often beneficial for the company. Taking control will be confirmed
when this purchase is into effect. The purpose of this kind of takeover is to get profits.

Bad outcomes:
3. Another case of the first scenario when there is no super majority provision and also
there is lack of majority amongst the shareholders who votes against the takeover.
This can certainly lead to hostile takeover of the company and its also shows the
inefficiency of management in order to take decisions for the company. Poor
management can often lead to takeover of the company.
4. The preventive and actives measures come into action when there is a defensive
strategy opted against such take overs. Not all the strategies used in defence lead to
reformation of a company and gain in its productivity. But inefficient implementation
of these counteractions can get the company in a situation of hostile takeover.

Neutral outcome:
5. Not always the management is poor or inefficient. Sometimes the takeover is often to
take over the management and not the company. This kind of takeover can be
considered as a neutral one as the company’s shares are sold but the management
people remains the same.

6
References

1. W.J. Carney, Mergers and acquisitions. Essentials, Aspen Publishers New York, p.25-26.
2. R.F. Bruner, Applied mergers & acquisitions, John Wiley & Sons., New Jersey 2004, p-837-840
3. Hitt ,.M.A.,Black, J.S. & Porter, L.W. 2012, Management, 3rd Ed., Pearson International London

Other Sources

1. https://www.buildium.com/features/
2. https://www.investopedia.com/ask/answers/042215/what-difference-between-hostile-takeover-and-
friendly-takeover.asp