INDIAN INSTITUTE OF PLANNING AND MANAGEMENT NEW DELHI
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IIPM
IIPM TOWER, SATBARI,
CHANDAN HAULA, CHATTARPUR-BHATIMINES ROAD NEW DELHI
“DEFENSE STRATEGIES ADOPTED BY A COMPANY UNDER THREAT OF A TAKEOVER”
A report submitted for internal assessment of
Mergers and Acquisitions
Submitted to: Prof Ramakrishnan
Submitted by: Varun Sakhuja
Roll number: 99
Section: FN-5
Takeover defenses include all actions by managers to resist having their firms acquired. Attempts by target managers to defeat outstanding takeover proposals are overt forms of takeover defenses. Resistance also includes actions that occur before a takeover offer is made which make the firm more difficult to acquire. The intensity of the defenses can range from mild to severe. Mild resistance forces bidders to restructure their offers, but not prevent an acquisition or raise the takeover price substantially. Severe resistance can block takeover bids, thereby giving the incumbent managers of the target firm veto power over acquisition proposals. A natural place to begin the analysis of takeover defenses is with the wealth effects of takeovers. There is broad agreement that being a takeover target substantially Increases the wealth of shareholders. Historical estimates of the stock price increases of target firms are about 20% in the mergers and about 30% in tender offers. The large gain for target stockholders in takeovers seems to imply that all takeover resistance is bad. Resistance makes the firm more difficult to acquire. If the defense works, it lowers the probability of a takeover and stockholders are thus less likely to receive takeover premiums. Takeover resistance can benefit shareholders. Stockholders are concerned about the market va ...