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Takeovers 6Th Set of Transparencies For Tocf
Takeovers 6Th Set of Transparencies For Tocf
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Golden parachutes
Takeover defenses: – 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
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I. PURE THEORY OF TAKEOVERS
Raider appears
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Suppose can commit to sale price P
or
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But “can’t commit” : see later.
INCENTIVE TO PREPARE RAID
Cost c of acquiring information: For cutoff
where
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If (1) satisfied for no change.
Otherwise ( A small )
(a)
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UNKNOWN VALUE ENHANCEMENT
( with measurable ex post)
Observation: package sale not optimal,
partial sale = metering device.
Example:
and independent.
no credit constraint.
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unknown: keep 50% of shares,
charge P for block,
purchases iff
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II. POSITIVE THEORY
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 ).
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VALUE ENHANCING RAIDER: (Grossman-Hart 1980)
Continuum of shareholders.
Unrestricted, unconditional offer
probability of success
Toehold: positive
if raider
surplus
and
Dilution : can dilute fraction of gains made by
shareholders who have not tendered – if gains control
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TAKEOVER DEFENSES
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
Also
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A-shareholders get each.
Expected value enhancement on voting shares:
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For a large, can show (GH)
Intuition
very unlikely
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Multiple shares / shareholders:
divide each share into N shares ( aN voting shares,
kN needed for
majority )
# of shares tendered
a
0 N
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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.
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VALUE DECREASING RAIDER
DS to tender
coordination problem
Suppose A shares
B shares (no interest to raiders).
Would like raider to buy as many shares as possible:
ONE-SHARE-ONE VOTE
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