Friday, March 05, 2004

Hostile takeovers Most of the recent mergers and acquisitions have been friendly deals, with the support of management and, at most, minority stockholder opposition. On the other hand, there have been several hostile takeover attempts that have gotten truly hostile. These include: Oracle's long frustrated attempt to buy out software rival PeopleSoft Comcast's current offer for Disney Drugmaker Sanofi's attempt to buy rival Aventis Not since the 1980s, the heyday of hostile takeovers, have the markets seen this amount of high-profile attempts, according to an article in The Economist ("When battles commence", 2/19/2004). The article analyzes the abovementioned deals, all still pending, along with a number of failed bids in the US, Japan, and Europe. There are three defenses commonly used by the target company. One is using antitrust law, something PeopleSoft has used against Oracle so far, getting a Department of Justice ruling in its favor. The second is a "poison pill," a device "that allows shareholders in forms threatened by a hostile bid to buy new shares in their company at a big discount, that make it more costly to take over the firm." PeopleSoft has a poison pill provision. Studies indicate that 40% of the US's publicly-held firms have some kind of poison pill. The third method is the staggered board, meaning that the terms of board are staggered so that a sudden coup on the board is unlikely. 60% of major US firms have staggered boards. (PeopleSoft also has a staggered board - no wonder Oracle's task is so difficult.) But things may be changing. Antitrust groups in the US and Europe are not as doctrinaire against hostile takeovers as the once were, and even Japan's protectiveness is getting challenged more and more. Stockholders, especially big pension funds and other institutional owners, are less willing to have their companies take extraordinary defensive tactics to poison the deal if in the end it reduces their equity in a radical way. While PeopleSoft's triumph in its own defense seems assured, the case of Disney and Aventis are far from settled. 6:08:29 PM

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