Acquisition bid hostile launch make stake take takeover target
B. Complete the following newspaper extracts with words from Exercises 4 and 5. There may be several possible choices for each gap.
1) Investors dismissed Lafarge's £3.4 billion ................... ...................... for Blue Circle yesterday, rejecting the offer on the grounds that it was 'wholly inadequate'.
2) The Boards of Glaxo Wellcome and Smithkline Beecham announce that they have unanimously agreed to the terms of a proposed.................. of equals to form Glaxo Smithkline. The new company is expected to generate substantial operational synergies.
3) Sotheby's, the auction house, is forming a ……………………….. ................................. with Amazon.com, the Internet retailer, to create a new online auction service. As part of the deal Amazon.com will……. ………….. …………. in Sotheby's.
Exercise 5
Do you know of a firm in your country that has been taken over by a foreign company? What happened? Was the takeover a success?
Read the article from the Financial Times by Tony Major and answer the questions.
True or false ?
British and American buyers of German companies...
l are interested in acquiring technical know-how.
l require a high level of profit from their acquisitions.
l are not willing to pay more than necessary for their acquisitions.
l do not want to know the financial details of the company they are taking over.
The German owners of the target companies ...
l are keen to discuss their firms' finances.
l don't always understand their firms' finances.
l usually don't understand the technical side of their businesses.
l present their accounts to show as much profit as possible.
Avoid merger most horrid
Sensitivity to language and culture is needed by Anglo-American companies attempting German takeovers
When a brash, aggressive US group bought a 180-year-old, family-owned Mittelstand company with a strong culture and well-known brand, it did not take long for the deal to turn sour. Within weeks, senior management at the German company had left, and the second-line managers were dashing for the exits. The Americans used first names with everybody, spoke English and closed the canteen in the belief that staff could eat sandwiches on the run. They did not. Germans like hot lunches. The last straw was a morning "cheerleader" session, when German staff were expected to take part in a rousing two-minute "we are the best" call to arms.
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This is just one example of a recent merger involving a Mittel stand company that failed. "It was a cross-border catastrophe," says Valerie Lachman of M&A International, a consultancy that specialises in advising the Mittelstand - Germany's thousands of small and medium-sized companies. "The Americans were not aware of the big cultural differences and they didn't want to spend time trying to understand the German company and integrating it into their operations," says Ms Lachman. "The whole deal quickly unravelled. If buyers don't do their homework properly, there will be more failed mergers."
There were almost 2,000 acquisitions involving German companies last year. About 600 of them involved the sale of a German company to foreign buyers, the bulk of them US or British, put the gulf in understanding between a typical Anglo-American concern used to a highly competitive capitalist marketplace, and a Mittelstand company with 65 employees and a turnover of DM20 million (£6.2 million) is problematic for potential partners.
The Anglo-American buyer is financially oriented, looking to "get bigger" in Europe and has targeted Germany, the largest and most technically sophisticated market in Europe. It needs a high return on investment probably close to 20 percent and the lowest possible purchase price. Above all, it wants figures from the target company. But Mittelstand owners find it hard to part with figures. "They have a strong desire for financial privacy," says Ms Lachman. "Very often it is because the owner does not really understand financial matters." These owner-managers, often engineers, usually have a detailed knowledge of the technical side of a business they may have built from scratch over 40 years. They are proud of their companies and probably control most aspects of the firm's running. But when it comes to the accounting, this has usually been in the hands of their tax advisers. "You have to understand that they usually don't want to be seen to be making too much money because it gets taxed heavily," Ms Lachman adds.
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From the Financial Times
Exercise 6
Match the terms often used to talk about M & A with their definitions.
| 1. Macaroni defence | a) | Shares of the target firm are bought early in the morning, before the target is aware of the attack |
| 2. Greenmail | b) | Delaying all activities, such as meetings, in the hope that an alternative friendly takeover can be set up |
| 3. War chest | c) | A company's most prized assets |
| 4. Poison pill | d) | Attackers agree to withdraw their bid if paid enough money for the shares they have in the target company |
| 5. Crown jewels | e) | Any strategy that will make the target company more expensive or less attractive |
| 6. Sandbagging | f) | The target company issues bonds* that will be redeemed at a higher price following a takeover |
| 7. Dawn raid | g) | The company directing a hostile takeover or seeking to take over another company |
| 8. Predator/ raider/ corporate raider/ black knight | h) | Company that helps another company fight a hostile takeover |
| 9. Shark repellent | i) | Cash or assets used to buy a company or defend oneself from the takeover |
| 10. White knight | j) | Strategies used by the target company to make themselves less attractive for a hostile takeover |
*A bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as the issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it "matures," or comes due.
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Read the following text and underline the arguments for and against leveraged buyouts.
LEVERAGED BUYOUTS
One indication that the people who warn against takeovers might be right is the existence of leveraged buyouts.
In the 1960s, a big wave of takeovers in the US created conglomerates - collections of unrelated businesses combined into a single corporate structure. It later became clear that many of these conglomerates consisted of too many companies and not enough synergy. After the recession of the early 1980s, there were many large companies on the US stock market with good earnings but low stock prices. Their assets were worth more than the companies' market value. Such conglomerates were clearly not maximizing stockholder value. The individual companies might have been more efficient if liberated from central management. Consequently, raiders were able to borrow money, buy badly-managed, inefficient and underpriced corporations, and then restructure them, split them up, and resell them at a profit. Conventional financial theory argues that stock markets are efficient, meaning that all relevant information about companies is built into their share prices. Raiders in the 1980s discovered that this was quite simply untrue. Although the market could understand data concerning companies' earnings, it was highly inefficient in valuing assets, including land, buildings and pension funds. Asset-stripping - selling off the assets of poorly performing or under-valued companies - proved to be highly lucrative.
Theoretically, there was little risk of making a loss with a buyout as the debts incurred were guaranteed by the companies' assets. The ideal targets for such buyouts were companies with huge cash reserves that enabled the buyer to pay the interest on the debt, or companies with successful subsidiaries that could be sold to repay the principal, or companies in fields that are not sensitive to a recession, such as food and tobacco.
Takeovers using borrowed money are called 'leveraged buyouts' or 'LBOs'. Leverage means having a large proportion of debt compared to equity capital. (Where a company is bought by its existing managers, we talk of a management buyout or MBO.)
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Raiders and their supporters argue that the permanent threat of takeovers is a challenge to company managers and directors to do their jobs better, and that well-run businesses that are not undervalued are at little risk. The threat of raids forces companies to put capital to productive use. Fat or lazy companies that fail to do this will be taken over by raiders, who will use assets more efficiently, cut costs, and increase shareholder value. On the other hand, the permanent threat of a takeover or a buyout is clearly a disincentive to long-term capital investment, as a company will lose its investment if a raider tries to break it up as soon as its share price falls below expectations.
LBOs, however, seem to be largely an American phenomenon. German and Japanese managers and financiers, for example, seem to consider companies as places where people work, rather than as assets to be bought and sold. Hostile takeovers and buyouts are almost unknown in these two countries, where business tends to concentrate on long-term goals rather than seek instant stock market profits. Workers in these companies are considered to be at least as important as shareholders. The idea of a Japanese manager restructuring a company, laying off a large number of workers, and getting a huge pay rise (as frequently happens in Britain and the US), is unthinkable. Lay-offs in Japan are instead a cause for shame for which managers are expected to apologize.
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