Who benefits from take over resistance tactics?
Who benefits from take over resistance tactics?
According to the finance literature, a takeover is a process whereby a firm acquires another firm, resulting in a change of the controlling interest of the acquired firm. Takeovers can occur through acquisitions, proxy contests and going-private transactions. They can be friendly when the management of the target firm is receptive to the bidder offer or they can be hostile when target firm managers resist takeover attempts by using defensive tactics. According to Ross et al (2010), takeovers can result in change of firm policies, layoffs, terminations, or overhaul of business operations.
To analyze who benefits from a takeover resistance tactic, we should first examine the reasons or motivations of the defensive tactic by target firm managers. According to Ruback (1987), managers resist takeovers for the following reasons:
Managers believe that firm has hidden values, this is due to the private information they have about the firms future prospects that is not available to the public and when managers assess the takeover bid by comparing the offer price with what they believe is the fair value of the firm (incorporating the private information) and the offer price turns out to be less, managers will oppose the offer.
Managers believe the resistance will increase offer price, therefore, their attempt to resist slows the bid and create opportunity to an increase of the tender offer as the bidder after an initial unsuccessful friend offer, tries to buy through a tender offer and if not successful, try the auction for the firm. According to Ruback (1983) cited in Ruback (1987), the final offer price exceeded the initial offer price by 23% in 48 competitive tender offers between 1962-81.
Managers may want to preserve their jobs and positions, especially when they are ware that the bidder intends to replace the target firm’s management.
Target firm managers use a variety of defensive tactics to avoid takeovers,
According to the finance literature, a takeover is a process whereby a firm acquires another firm, resulting in a change of the controlling interest of the acquired firm. Takeovers can occur through acquisitions, proxy contests and going-private transactions. They can be friendly when the management of the target firm is receptive to the bidder offer or they can be hostile when target firm managers resist takeover attempts by using defensive tactics. According to Ross et al (2010), takeovers can result in change of firm policies, layoffs, terminations, or overhaul of business operations.
To analyze who benefits from a takeover resistance tactic, we should first examine the reasons or motivations of the defensive tactic by target firm managers. According to Ruback (1987), managers resist takeovers for the following reasons:
Managers believe that firm has hidden values, this is due to the private information they have about the firms future prospects that is not available to the public and when managers assess the takeover bid by comparing the offer price with what they believe is the fair value of the firm (incorporating the private information) and the offer price turns out to be less, managers will oppose the offer.
Managers believe the resistance will increase offer price, therefore, their attempt to resist slows the bid and create opportunity to an increase of the tender offer as the bidder after an initial unsuccessful friend offer, tries to buy through a tender offer and if not successful, try the auction for the firm. According to Ruback (1983) cited in Ruback (1987), the final offer price exceeded the initial offer price by 23% in 48 competitive tender offers between 1962-81.
Managers may want to preserve their jobs and positions, especially when they are ware that the bidder intends to replace the target firm’s management.
Target firm managers use a variety of defensive tactics to avoid takeovers,