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Frame of Reference
The theoretical framework section introduces the reader to a more in-depth knowledge about takeovers in general and how they are performed and regulated in Sweden. A higher concentration on hostile takeovers will follow, with by both pre-bid and post-bid defense tactics presented.
Takeovers
Friendly vs. Hostile takeovers
Friendly and hostile takeovers are the two types of takeovers used today in the business world. In a friendly takeover the board and management of the targeted company are open to the idea of a possible takeover. In order to gain control the acquiring company is required to pay a premium on the current price of the stock. The size of the premium often reflects the interest and possible synergies resulting from combing the two firms. Unlike friendly, hostile takeovers occurs when the initial approach was unsolicited for, meaning that the target was not searching for a merger, the approach was contested by the target’s management and more than half of the target’s common stock was acquired. Through the usage of so called tender offer, the acquirer goes directly to the target’s shareholders and offers to buy all the shares in the company. Friendly takeovers is often preferred to hostile from bidders point view, since they often result in a lower cost from the acquirers side. A hostile takeover process may open up for other interested parties to participate in the takeover, making the final price ending up at a higher level. From the targeted company’s point of view a friendly takeover is preferable, since this would facilitate the post-takeover integration and for this reason most transaction tends to be friendly. (DePamphilis, 2005)
Steps in a Swedish takeover process
All takeovers made are individual concerning price, compensation and to what extent the offers are valid. However there are certain phases that can be distinguished for takeovers in general in Sweden. In the first phase, also known as the intelligence phase, the bidding company collects information about its target. Information is often collected with the help of a corporate finance consultant, who helps developing a prospect concerning time schedule, financing and compensation. This phase ends with a due diligence, which serves as review of all financial records plus anything else deemed material for a transaction. The second phase starts with a formulation of the offer which is made public. The publication is circumscribed with different rules for protecting shareholders and the stock market. The process continues with the third phase, which constitutes a period where the target considers the bid and possibly implementing defense tactics, which ones to put into practice is restricted by the Swedish legal system. The fourth phase is closely linked to the previous one, but is where the offer ought to be implemented. It is where decisions are made in both the acquiring and target company with the aspect of corporate laws in connection with Swedish takeover-regulation. The fifth and final phase causes the corporate acquisition. (Stattin,2006)
Rules concerning public tender offer
A new law came into force in the first of July 2006 concerning public tender offers on the public stock exchange. According to that law, there are certain rules an acquirer needs to follow when making a public offer. The new law is subordinated the demands from an EUdirective.According to lag (1992:543), “om börs- och clearings verksamhet”, a stock exchange is demanded to have rules concerning takeovers on listed companies. The rules should be followed by both acquirer and targets, and interpretation exceptions are determined by the Swedish Securities Council. The rules are applicable in the light with principals which helps to acts as guidance. The principals are as follows:
All proprietors of securities in a target company should be treated equal.
All proprietors of securities in a target company should be given sufficient amount of time and information in order to be able to consider a takeover offer. The board should give a viewpoint how the offer affects the future activities.
The target board should pay attention to the interest of the company as a whole.
The market where any of the target, acquirer or any other company involved in the offer is traded is not allowed to be affected in an artificial way, making the stock price move unnatural.
A bidder is only allowed to announce an offer with a premium, if it is financial guaranteed.
An offer concerning the securities in a target company is not allowed to obstruct
the company in its activity reasonable. (omx-group.com, 2008)
At a higher economic growth rate there is an increase of foreign owners in Swedish companies, this brings along that a bidder needs to consider more than one country when making an offer. Is a due diligence performed of the target company, and new information is retrieved, an acquirer is prohibited to purchase any shares until the same information has reached the stock market and stock owners (lag (2005:377) “straff för marknadsmissbruk vid handel med finansiella instrument)) (omx-group.com, 2008).When decided to make an offer, it is essential that the offer is made public instantly, and an offer is required to contain certain requirements such as who makes the offer, which financial instruments is concerned, price and premium and how the takeover is financed. If the acquirer decides to retract the offer, is also needs to be done in public as soon as possible.There is a timeframe for acceptance for a target company of minimum of three weeks and maximum ten weeks. However, the timeframe can be extended if the bidder has reserved the right to do so. It is also required by the acquirer to offer identical compensation to all proprietors of the shares. The boards and CEO might take actions with the aim to deteriorate the conditions concerning the offer and its implementation is limited by lag (2006:451) “om offentliga uppköps erbjuanden på aktiemarknaden”. The same law controls the “bid-obligation” where one has acquired more than three tens or more of the total number of shares in a company is required to offer itself to acquire the remaining shares. When the timeframe for acceptance has expired, the acquirer is demanded to announce the following information in public:
How many shares in the target company encompass of acceptance in the offer and how large part of the equity and voting rights these shares represent.
Whether predetermined accomplishment terms has been fulfilled.
How many shares in the target company owned by the acquirer.
The previous mentioned points is regulated by lag (1991:980) “om handel med finansiella instrument”, in the light of EU directive no. 809/2004 (omx-group.com, 2008).
1 Introduction
1.1 Background
1.2 Problem discussion
1.3 Purpose
1.4 Method
1.4.1 Research Approach
1.4.2 Theory Selection
1.5 Definitions
1.6 Delimitations
2 Frame of Reference
2.1 Takeovers
2.1.1 Friendly vs. Hostile takeovers
2.1.2 Steps in a Swedish takeover process
2.1.3 Rules concerning public tender offer
2.2 Mergers and Acquisitions
2.3 Bid Premium
2.4 Hostile Takeover
2.5 Defense Tactics
2.6 Pre bid Defenses
2.6.1 Blowfish
2.6.2 Poison pill
2.6.3 Shark repellent
2.7 Post bid Defenses
2.7.1 Attack the logic of the bid
2.7.2 Corporate Restructuring and Reorganization
2.7.3 White Knight & White Squire
2.7.4 Crown jewel defense
2.7.5 Scorched earth
2.7.6 Share repurchase
2.7.7 Greenmail
2.7.8 Management buyout
2.7.9 Pac-man defense
2.7.10 Positive public information
3 Methodology
3.1 Research Method: Quantitative/Qualitative
3.2 Sample
3.3 Data Collection
3.4 Statistical research
3.5 Validity & Reliability
3.6 Critiques of Chosen Method
4 Empirical findings
4.1 Defense Tactics
4.2 Industry
4.2.1 Industry data
4.2.2 Pre-bid defense tactics
4.2.3 Post-bid defense tactics
4.2.4 Combination of Pre-bid and Post-bid
4.2.5 Deal or no deal
4.2.6 Increased Bid
4.2.7 Industry and defense tactics
4.3 Bid Premium
5 Analysis.
5.1 Pre-bid defense tactics
5.2 Post-Bid
5.2.1 Missing Defense Tactics
5.3 Bid premium
5.4 Industry
6 Conclusion
6.1 Further research
6.2 Reflections
References
