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Defenses against Hostile Takeovers

 
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Defenses against Hostile Takeovers
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A “Takeover” of a company is no different from an “Acquisition” of a company, which as per the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, means - “directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or control over, a target company”. A normal takeover (friendly/ peaceful takeover) is different from a “hostile takeover” because in a “hostile takeover,” the current management or the owners (shareholders) resists the entry of the acquirer and the exercise of his control over the company.

There is a complicated web of laws that govern the takeover of companies and the procedure itself requires the framing of complex strategies and the negotiation and execution of multiple agreements between parties which are many a times resilient to indulge in such activities. Little has been accomplished by forging of legal mechanisms such as the SEBI Takeover code, SEBI (Disclosure & Investor Protection) Guidelines 2000, the FDI policy and the FEMA regulations to prevent unfair practices in the takeover of companies. The number of attempts of hostile takeover in India have been on a constant rise in the past decade especially after the LPG phase of 1991.

In the past few years, though some companies have managed to fend off against their acquirers and even shield themselves against unwanted media exposure, others have not been so fortunate. The hostile takeover of Raasi Cements Ltd. by India Cements Ltd. in 1998 is an appropriate example that elaborates how even the founders of a company can lose control over their company if they do not have proper mechanisms in place.

Some of the defense strategies adopted by big companies to prevent and counter attempts of hostile takeovers are as follows:

  1. Blowfish

  2. Poison Pills

  3. Shark Repellants

  4. Attack the Logic of the bid

  5. Corporate Restructuring

  6. Crown Jewel Defense

  7. Greenmail

  8. Management Buyout

  9. Pac-Man

  10. Positive Public Information

  11. Share Repurchase

  12. Scorched Earth

  13. White Knight / White Square

 

For further information on Mergers & Acquisitions please write to us at info@ssrana.com.

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