1. Defence Various terminology Tactics: Their Why are firms - PDF document

Thursday, 30 November 2000 http://www.mergers-acq.co.uk Key Areas Covered: 1. Defence tactics Why are firms susceptible to take-over? Mergers & Acquisitions II � Implications to Shareholders � 2. Success & Failures Are shareholders the winners? � Successes, Drawbacks, 3. Corporate Restructuring Restructuring & Trends 4. Trends & Susceptible Areas Compiled and Presented By: Alex Kent, Simon Giddings, Aaron Brigatti Friday, 1 December 2000 Mergers & Acquisitions II 2 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Defence Tactics 1. Defence Various terminology Tactics: Their Why are firms susceptible to take- Successes and over? Pre-bid defences Implications Implications to Shareholder Friday, 1 December 2000 Mergers & Acquisitions II 3 Friday, 1 December 2000 Mergers & Acquisitions II 4 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Various Terminology White Knight What does it mean? White Knight Poison Pill A company that makes a friendly Yellow Knight People Pill takeover offer for control of a target Gray Knight Sleeping Beauty company which is being faced with a Black Knight Pac-Man hostile takeover from a separate party. Sandbag Shark Repellent Macaroni Defence Greenmail The Knight in shining armour comes to the rescue! Friday, 1 December 2000 Mergers & Acquisitions II 5 Friday, 1 December 2000 Mergers & Acquisitions II 6 1

Thursday, 30 November 2000 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Yellow Knight Gray Knight What does it mean? What does it mean? A second, unsolicited bidder in a corporate Used to describe the situation where a takeover who enters in order to take company making a takeover attempt advantage of any problems between the first ends up discussing a merger with the bidder and the target company. target company. Think of a Gray Knight as a vulture, circling and waiting to clean up whatever mess is left. Friday, 1 December 2000 Mergers & Acquisitions II 7 Friday, 1 December 2000 Mergers & Acquisitions II 8 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Black Knight Sandbag What does it mean? What does it mean? A tactic used by management to stall A company which makes a hostile with a company that is showing takeover offer on a target company. interest in taking them over. The bad guy...if it's your company The company stalls in hopes that being targeted. another more favourable company will take them over. Friday, 1 December 2000 Mergers & Acquisitions II 9 Friday, 1 December 2000 Mergers & Acquisitions II 10 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Macaroni Defence Poison Pill What does it mean? What does it mean? An approach taken by a company that does A strategy used by corporations to not want to be taken over. The company discourage the hostile takeover by another issues a large number of bonds with the company by making it's stock less attractive condition they must be redeemed at a high to the acquirer. price if the company is taken over. Why is it called Macaroni Defence? Because This is similar to the macaroni defence if a company is in danger, the redemption except it uses equity rather than bonds. price of the bonds expands like Macaroni in a pot! Friday, 1 December 2000 Mergers & Acquisitions II 11 Friday, 1 December 2000 Mergers & Acquisitions II 12 2

Thursday, 30 November 2000 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk People Pill Sleeping Beauty What does it mean? What does it mean? A defensive strategy to ward off a hostile A company that is prime for takeover and takeover. Management threatens that, in which has not been approached by an the event of a takeover the entire acquirer. management team will resign. Reasons for being a sleeping beauty are that This is a version of the poison pill defence. it has large cash reserves, undervalued real estate, or otherwise huge potential. Friday, 1 December 2000 Mergers & Acquisitions II 13 Friday, 1 December 2000 Mergers & Acquisitions II 14 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Pac-Man Shark Repellent What does it mean? What does it mean? Any number of measures taken by a A form of defence used in a hostile takeover corporation to discourage an unwanted situation. The takeover target turns around takeover attempt. and tries to takeover the company that has made a hostile bid for it. Examples of shark repellent include Golden Parachute contracts with executives, a Just think all those years of Atari might just defensive merger with another company, a pay off someday. super-majority provision, etc. Friday, 1 December 2000 Mergers & Acquisitions II 15 Friday, 1 December 2000 Mergers & Acquisitions II 16 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Which Companies are Greenmail Susceptible? What does it mean? All Public Limited Companies at risk A situation in which a large block of � No restrictions in transfer of shares stock is held by an unfriendly More Vulnerability = More Risk of company, forcing the target company Takeover to repurchase the stock at a substantial premium to prevent a takeover. � Shareholders dissatisfied with company � Undercapitalised A very dirty, but effective practice. � Inadequacies of Management Friday, 1 December 2000 Mergers & Acquisitions II 17 Friday, 1 December 2000 Mergers & Acquisitions II 18 3

Thursday, 30 November 2000 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Implications to Shareholders Pre-bid Defences - Internal A "raider" bids for shares of the target Internal Defences firm � Improve efficiency & Reduce costs Dealing *direct* with the firm’s � Improve Strategy: Restructuring, shareholders. divestment ... Some instances, paid a premium of 30- � Change Ownership Structure 50% of their shares!! � Change Management Structure Share of the raider’s “gains” from the � Use Organisational Constituencies acquisitions. Friday, 1 December 2000 Mergers & Acquisitions II 19 Friday, 1 December 2000 Mergers & Acquisitions II 20 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Pre-bid Defences - External Post-offer Defences External Defences First Response & Pre-emption Letter � Cultivate Shareholders & Investors Defence Document � Publicise company strategy Profit Report / Forecast � Improve image Promise of higher Dividends � Make strategic defence investments Asset Revaluation � Monitor share register for unusual Share Support Campaign purchases Regulatory Appeal . . . Friday, 1 December 2000 Mergers & Acquisitions II 21 Friday, 1 December 2000 Mergers & Acquisitions II 22 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk . . . More Post-offer Defences Costs Of Defence Breakdown of costs of a £30million target (£000) Litigation Printing Solicitor's Fees 2 ccountant's Fees P.R. 35 Acquisition & Divestment 5 35 Unions / Workforce Stockbroker Fees Customers / Suppliers 75 Red Herring Misc. Advertisements Merchant Bank 1 Fees 320 Friday, 1 December 2000 Mergers & Acquisitions II 23 Friday, 1 December 2000 Mergers & Acquisitions II 24 4

Thursday, 30 November 2000 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Success & Drawbacks 2. Success and Technological Issues Failures of Cultural Issues Merger & � Freeserve – T-Online or Wanadoo � National Differences Take-Over Synergies Achieved Activities Are All Mergers Successful? Friday, 1 December 2000 Mergers & Acquisitions II 25 Friday, 1 December 2000 Mergers & Acquisitions II 26 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Technological Issues Cultural Issues Technology issues: One challenge Cultural issues: These are the other could be integrating two or more main problem faced when bringing two converging businesses' front-office or more companies together. Many technology - the IT systems seen by apparently logical mergers have fallen customers or used to interact with through late on because of "cultural them differences". Friday, 1 December 2000 Mergers & Acquisitions II 27 Friday, 1 December 2000 Mergers & Acquisitions II 28 http://www.mergers-acq.co.uk http://www.mergers-acq.co.uk Freeserve - Failures Freeserve: Share Price For example, cultural differences were cited last week as one reason why T-Online of Germany did not buy Freeserve, the UK internet service, from Dixons, the electrical goods retailer. Friday, 1 December 2000 Mergers & Acquisitions II 29 Friday, 1 December 2000 Mergers & Acquisitions II 30 5