A comparatively simple tactics had been sufficient to force a usually surprised and bewildered target into submission. As hostile takeovers reached new heights of intensity, targets became more wary, and bidders were required to advance the sophistication of their takeover tactics.
The main alternatives available to a hostile bidder, a bear hug, a tender offer, and a proxy fight.
A bear hug is an offer made directly to the directors of the target corporation. This puts pressure of the directors because it carries with it the implication that if the offer is not favorably received.
A bear hugs are the least aggressive and often occur at the beginning of a hostile takeover. When the target is not strongly opposed to a takeover, a bear hug may be sufficient.
The bear hug forces the target’s board to take a public position on the possible takeover by this bidder.
A bear hug also puts pressure on the board of directors because it must be considered lest the board be regarded as having violated its fiduciary duties.
Once a bear hug becomes public, arbitragers typically accumulate the target’s stock.
A stronger version of the standard bear hug occurs when one bidder offers a specific price in order to, among other reasons, establish a range for damagers in possible stockholder lawsuits that might follow the target management’s rejection of the bid.
This tactic increases the pressure on the target’s board, which might be the object of the lawsuits.
Because the William Act is the key piece of federal legislation that regulates tender offers, it is ironic that the law does not even define the term.
The tender offer was the most frequently used tool of hostile takeovers in the 1980s in US.
In using a tender offer, the bidder may be able to circumvent management and obtain control even when the managers oppose the takeover.
The cost associated with a tender offer, such as legal filing fees and publication costs, make the tender offer a more expensive alternative than a negotiated deal.
The initiation of a tender offer usually means that the company will be taken over, although not necessarily by the firm that initiated the tender offer.
There are several variations of a tender offer, such as the all cash offer and the two tiered offer.
The all cash offer may go with an all-cash tender or may use securities as part or all of the consideration used for the offer.
Securities may be more attractive to some of the target because under certain circumstances the transaction may be considered tax free.
Two-tiered tender offers, referred to as a front end-loaded tender offer. It provide for superior compensation for a first-step purchase, followed by inferior compensation for the second tier or the back end of the transaction.
The technique is designed to exert pressure on stockholders who are concerned that they may become part of a second tier and they may receive inferior compensation if they don’t tender early enough to become part of the first tier.
Is an attempt by a single shareholder or a group of shareholders to take control or bring about other changes in a company through the use of the proxy mechanism of corporate voting.
Which work through the corporate election proxy, may bring about a change in control or seek more modest goals, such as the enactment of shareholder provisions in the company’s corporate charter.
In proxy fight, a bidder may attempt to use his voting rights and garner support form other shareholders to oust the incumbent board and/or management.
Research on the shareholder wealth effects of proxy fights has consistently shown that they tend to be associated with increased shareholder wealth.
Approximately 80% of annual shareholder meetings are held in the spring at a site selected by management.
Under the proxy system, shareholders may authorize another person to vote for them and to act as their proxy. Most corporate voting is done by proxies.
Two main forms of proxy contests :
The situation when proxy fight will be success :
A proxy fight may be a less expensive alternative to a tender offer. The major cost categories of a proxy fight are :
The gains seem to be related to the acquisition of the target company or to management turnover. Even when proxy fights are not directly successful, they may bring about changes that increase shareholder value.
The playing field of hostile deals again reversed itself by the middle of the 1990s,with the tender offer once again becoming a more effective tool for implementing hostile takeovers.
With the rebound of the tender offer, now financed more with equity and less with debt, proxy fight again played a less important role.
Just as with antitakeover increasingly effective defense that targets have erected.
This process will continues to evolve in the future.