Suicide pill:A hostile takeover prevention tactic that could destroy the target company.

Taking on a large amount of debt to prevent the takeover might cause bankruptcy. An antitakeover measure stipulating that shareholders on the receiving end of a hostile takeover may buy shares in their own company at a price below fair market value. Once the acquisition is complete, the provision allows these same shareholders to buy more shares in the new company for below market value. This forces shareholders in the acquiring company to suffer a devaluation and dilution of their own shares. This is done to discourage hostile takeovers among the shareholders of the acquiring companies. In essence, a suicide pill is identical to a poison pill except for degree; the term suicide pill indicates that the target company may intentionally go bankrupt, rather than simply weaken itself. A poison pill provision so devastating to the target of a takeover attempt that the target company may have to be liquidated to satisfy its creditors. For example, the company's directors may institute a suicide pill giving stockholders the right to exchange their stock for debt if a raider acquires more than a specified percentage of the company's outstanding shares. The tremendous increase in debt will effectively doom the target company if the takeover attempt is successful. Leveraged buyout (LBO) :A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment-grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments. The acquisition of a publicly-traded company, often by a group of private investors, that is financed with debt. Often, the acquirer in a LBO issues junk bonds in order to raise the capital necessary for the acquisition. A leveraged buyout allows a company to be taken over with little capital, but it can be a high risk endeavor. The use of a target company's asset value to finance most or all of the debt incurred in acquiring the company. This strategy enables a takeover using little capital; however, it can result in considerably more risk to owners and creditors. See also hostile leveraged buyout, reverse leveraged buyout. Case Study Leveraged buyouts (LBOs) became popular in the 1980s when firms such as Beatrice Companies, Swift, ARA Services, Levi Strauss, Jack Eckerd, and Denny's were acquired and then were taken private. With an LBO, a firm's management often borrows funds using the firm's assets as collateral. The borrowed money is used to purchase all the firm's outstanding stock. As a result, a small group of individuals is able to take control of the firm without using any or much of the group members' own money. Following the buyout the new owners frequently attempt to cut costs and sell assets in order to make the increased debt more manageable. Because the group initiating the LBO must pay a premium for the stock over the market price, an LBO nearly always benefits the stockholders of the firm to be acquired. However, investors holding bonds of

the acquired company are likely to see their relative position deteriorate because of the increased debt taken on by the company. For example, the leveraged buyout of R. H. Macy & Co. produced a $16 jump in the price of its common stock at the same time the price of its debt securities fell. Most bondholders have no recourse to the increased risks they face because of the greater resultant debt. Divestiture :A complete asset or investment disposal such as outright sale or liquidation. The removal of assets from a person or firm's balance sheet through sale, exchange, closure, bankruptcy, or some other means. Divestiture may occur when a person or company has acquired more than he/she/it can properly administer. This sort of divestiture may occur slowly; for example, a corporation may slowly sell subsidiaries to concentrate exclusively on its core competence. On the other hand, divestiture may occur because a person or company has become cash poor and needs to build liquidity very quickly. The sale, liquidation, or spinoff of a division or subsidiary. For example, a firm may decide to divest itself of a division in order to concentrate its managerial efforts on more promising segments of its business. Business alliance:A business alliance is an agreement between businesses, usually motivated by cost reduction and improved service for the customer. Alliances are often bounded by a single agreement with equitable risk and opportunity share for all parties involved and are typically managed by an integrated project team. An example of this is code sharing in airline alliances. There are five basic categories or types of alliances: Sales alliance Solution-specific alliance Geographic-specific alliance Investment alliance Joint venture alliance In many cases, alliances between companies can involve two or more categories or types of alliances. A sales alliance occurs when two companies agree to go to market together to sell complementary products and services. A solution-specific alliance occurs when two companies agree to jointly develop and sell a specific marketplace solution. A geographic-specific alliance is developed when two companies agree to jointly market or co-brand their products and services in a specific geographic region. An investment alliance occurs when two companies agree to joint their funds for mutual investment. A joint venture is an alliance that occurs when two or more companies agree to undertake economic activity together. Definition of 'Sell-Off':The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the value of the security. A sell-off may occur for many reasons. For example, if a company issues a disappointing earnings report, it can spark a sell-off of that company's stock. Sell-offs also can occur more

broadly. For example, when oil prices surge, this often sparks a sell-off in the broad market (say, the S&P 500) due to increased fear about the energy costs companies will face. Spin-off:A company can create an independent company from an existing part of the company by selling or distributing new shares in the so-called spin-off. A situation in which a company offers stock in one of its wholly-owned subsidiaries or dependent divisions such that subsidiary or division becomes an independent company. The parent company may or may not maintain a portion of ownership in the newly spun-off company. A company may conduct a spin-off for any number of reasons. For example, it may wish to divest itself of one industry so it can expand into another. It may also simply wish to profit from the sale of the subsidiary. A spin off should not be confused with a split off. Spin-off. In a spin-off, a company sets up one of its existing subsidiaries or divisions as a separate company.Shareholders of the parent company receive stock in the new company based on an evaluation established for the new entity. In addition, they continue to hold stock in the parent company. The motives for spin-offs vary. A company may want to refocus its core businesses, shedding those that it sees as unrelated. Or it may want to set up a company to capitalize on investor interest.In other cases, a corporation may face regulatory hurdles in expanding its business and spin off a unit to be in compliance. Sometimes, a group of employees will assume control of the new entity through a buyout, an employee stock ownership plan (ESOP), or as the result of negotiation. Definition of 'De-Merger':A business strategy in which a single business is broken into components, either to operate on their own, to be sold or to be dissolved. A de-merger allows a large company, such as a conglomerate, to split off its various brands to invite or prevent an acquisition, to raise capital by selling off components that are no longer part of the business's core product line, or to create separate legal entities to handle different operations. Investopedia explains 'De-Merger' For example, in 2001, British Telecom conducted a de-merger of its mobile phone operations, BT Wireless, in an attempt to boost the performance of its stock. British Telecom took this action because it was struggling under high debt levels from the wireless venture. Another example would be a utility that separates its business into two components: one to manage the utility's infrastructure assets and another to manage the delivery of energy to consumers. Post-merger manoeuvres - dos and don'ts August 20, 2001 Singapore Business Times By Till Vestring and Mike BookerPrintE-mail Share Merging companies in Singapore must bring the battlefield into focus. Over the next few months, as a number of the recently announced mergers in Singapore close, the new management teams will need to make a staggering number of decisions: Should we keep both brands, give up one brand, or create a new brand? Whose IT system should we adopt? How many branches can we close and what is the best way to reconfigure the new branch network?

Who should we select from the two merging companies as department heads? How many people will become redundant? Which pension scheme is better? RELATED ARTICLES The digital challenge to retail banks CONSULTING SERVICE Mergers & Acquisitions The ability of the merging management teams to make the right decisions and the speed with which they can execute those decisions will determine whether their mergers will create shareholder value or whether they will, as the majority of M&A deals do, ultimately destroy shareholder value. Few companies in Singapore have experience in this game. Furthermore, several of the deals in front of shareholders now have been put together at very short notice, with little or no time spent on pre-planning the integration. Military manoeuvres best illustrate the amount of planning required to integrate two large companies successfully. The quality of upfront planning, the officers' skills, the training of the field troops and the arsenal of available tools and processes all impact the outcome of such military manoeuvres. Before beginning to plan for integration, merging companies must bring the battlefield into focus. What is the strategic rationale behind the deal? What are the likely sources of value - cost reduction, cross-selling or new bundled service offerings? Is rapid integration the key to success or is it more important to get the strategy right first? The best integration approach depends on the strategic rationale of the deal. Many deals fail to add shareholder value because the integration process is not tailored to delivering the strategic goals of the deal. In a previous article, we outlined the six basic strategic rationales for mergers: active investing, scale, scope, adjacency expansion, refining business models and redefining industries. For each type of merger, the importance of speed, the balance between operational focus and strategy and the emphasis on cost-cutting versus revenue enhancement vary dramatically. For example, executives who use mergers to take their businesses in a fundamentally new direction ('reinventing the business' or 'redefining the industry') need to sacrifice speed and focus on strategy first. Integration comes later and cost reduction tends to be less important. Take the proposed merger between StarHub and SCV. Top managers' challenge will be to develop a profitable business model for their new bundled services (broadband Internet, cable TV, fixed and wireless telephony) and to cross-sell to their respective customer bases. Getting this right will take strategic thinking, testing and careful preparation. Acquisitions or mergers that intend to expand into adjacent markets, address new customer or product segments ('adjacency' or 'scope' rationales) require a balanced approach between strategy and integration. With Raffles Holdings' recent acquisition of Swissotel, Raffles will need to develop a two-tiered branding concept - super premium (Raffles) and business travel (Swissotel) - and to create synergistic linkages between the two hotel brands. In the meantime, however, the combined company may be able to reap more immediate benefits by standardising reservations, marketing systems and operational procedures, and merging common support functions. Finally, successful scale-driven mergers and acquisitions require rapid integration and ruthless elimination of overlap. The challenge often lies more in the sheer scale of the businesses involved and the high degree of overlap than in the strategy for the new entity.

Many of the deals currently in discussion in Singapore are primarily aimed at increasing scale: Celestica/Omni, Keppel Fels/Keppel Hitachi Zosen, OCBC/Keppel Capital, SMRT/Tibs and UOB/OUB are the most recent examples. The experiences of the most successful global 'serial acquirers' point towards some perhaps counter-intuitive lessons for success. The next 12 months will show whether these lessons also apply to current mergers in Singapore. - Maintain a high degree of focus on the base businesses of the two merging companies during the transition process instead of throwing a lot of resources at the integration. Most mergers and acquisitions fail because the core businesses of the two companies deteriorate before the integration is even complete. All but a very small part of the merging organisations should be focused on meeting existing revenue and profit targets, not on participating in the integration. - Don't rush. Speed is only valuable once the leaders have paved a well-flagged race course. Otherwise, speed quickly unravels into chaos. Investing in comprehensive, detailed planning upfront always pays off in an ultimately faster and smoother integration. - Deliver bad news quickly. One of the biggest challenges in a merger is that individuals are preoccupied with their own future. As veteran acquirer Dennis Kozlowski, CEO of Tyco International, observes: 'People are normally productive for about 5.7 hours in an eight-hour day, but any time a change of control takes place, their productivity falls to less than an hour.' Eliminating uncertainty improves productivity, even if employees lose their job. Term contracts and performance-based incentives can keep employees who will ultimately leave the company focused on working productively. - Disregard the popular principle, 'for each job, we will select the best person from either company'. This maxim only slows down and disrupts the integration process in scale-driven mergers. Selecting the best teams from either organisation rather than the best individuals makes for much more rapid and smooth integration, because it avoids mixed teams of people who have previously not worked together. - Don't let systems integration issues dictate the timetable for integration. Integrating systems often takes one to two years. Customers and competitors are unlikely to give a new entity that much time. Many processes, facilities, teams and systems can and need to integrate much more quickly. - Integration should come before any fundamental efforts to improve efficiency and effectiveness of processes. Companies that have tried to reengineer themselves while they are merging often get bogged down and stall as employees from both sides wrestle with new processes. Much better to integrate rapidly first, and review core processes later. Management teams involved in mergers and acquisitions in Singapore have their work cut out for them. The best way to create shareholder value from these deals is to tailor the integration process to the strategic rationale of the deal and to follow the best practices developed by frequent acquirers. Till Vestring is global head of Bain & Company's merger integration practice and a partner and vice-president in Singapore. Mike Booker is a manager with Bain & Company in Singapore and has extensive M&A experience in South East Asia

Keys to Successfully Completing an M&A Deal An M&A deal is the biggest deal of your life, so completing a successful transaction is key. Knowing a few key M&A tips whether you're merging or acquiring increases your odds of successfully completing an M&A deal. Secrets to success include the following: Retain capable and experienced M&A advisors. You can't complete this transaction alone, and a business owner who represents himself in a life-altering deal is asking for trouble. You need a dispassionate advisor, someone who has been through the process before and can guide you to a close. This advice is especially true if you're selling a business. Don't allow yourself to get too high or too low during the process. M&A is a roller coaster ride, with ups and downs around every turn as a deal you think is wrapped up one day falls apart the next day . . . only to come back together on the third day. You have to be able to keep an even keel. Check emotion at the door. Despite the frustrations of M&A, you need to keep your emotions in check. Yelling and screaming don't get the deal done. Logic, facts, and a cool demeanor do. Don't jump at the first offer. Ideally, you want to have multiple offers before deciding which deal to accept. Having options increases your chances of getting a great deal. Don't hold out for a marginally better offer. If you want to do a deal and the offer is sufficient, take it. Part of something is better than all of nothing, which may be what you get if you wait around for the perfect deal that never comes. Know when your position is weak or strong. Overplaying a strong hand can chase off otherwise suitable deals; misplaying a weak hand can scuttle the deal and perhaps your career! The market is the best way to determine your company's valuation. In other words, business appraisal services have limited value. Get out in the market and have actual conversations with actual Buyers. Lobster Trap Definition of 'Lobster Trap' A strategy used by a target firm to prevent a hostile takeover. In a lobster trap, the company passes a provision preventing anyone with more than 10% ownership from converting convertible securities into voting stock. Investopedia explains 'Lobster Trap' Examples of convertible securities include convertible bonds, convertible preferred stock, and warrants. Greenmail A situation in which a large block of stock is held by an unfriendly company. This forces the target company to repurchase the stock at a substantial premium to prevent a takeover.

It is also known as a "bon voyage bonus" or a "goodbye kiss". Greenmail or greenmailing is the practice of purchasing enough shares in a firm to threaten a takeover, thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover. The term is a neologism derived from blackmail and greenback as commentators and journalists saw the practice of said corporate raiders as attempts by well-financed individuals to blackmail a company into handing over money by using the threat of a takeover. Grey Knight In business, a white knight, or "friendly investor," may be a corporation or a person that intends to help another firm.[1] There are many types of white knights. Alternatively, a grey knight is an acquiring company that enters a bid for a hostile takeover in addition to the target firm and first bidder, perceived as more favorable than the black knight (unfriendly bidder), but less favorable than the white knight (friendly bidder).[2] The first type, the white knight, refers to the friendly acquirer of a target firm in a hostile takeover attempt by another firm. The intention of the acquisition is to circumvent the takeover of the object of interest by a third, unfriendly entity, which is perceived to be less favorable. The knight might defeat the undesirable entity by offering a higher and more enticing bid, or strike a favorable deal with the management of the object of acquisition. The second type refers to the acquirer of a struggling firm that may not necessarily be under threat by a hostile firm. The financial standing of the struggling firm could prevent any other entity being interested in an acquisition. The firm may already have huge debts to pay to its creditors, or worse, may already be bankrupt. In such a case, the knight, under huge risk, acquires the firm that is in crisis. After acquisition, the knight then rebuilds the firm, or integrates it into itself. White Knight In business, a white knight, or "friendly investor," may be a corporation or a person that intends to help another firm.[1] There are many types of white knights. Alternatively, a grey knight is an acquiring company that enters a bid for a hostile takeover in addition to the target firm and first bidder, perceived as more favorable than the black knight (unfriendly bidder), but less favorable than the white knight (friendly bidder).[2] The first type, the white knight, refers to the friendly acquirer of a target firm in a hostile takeover attempt by another firm. The intention of the acquisition is to circumvent the takeover of the object of interest by a third, unfriendly entity, which is perceived to be less favorable. The knight might defeat the undesirable entity by offering a higher and more enticing bid, or strike a favorable deal with the management of the object of acquisition.

The second type refers to the acquirer of a struggling firm that may not necessarily be under threat by a hostile firm. The financial standing of the struggling firm could prevent any other entity being interested in an acquisition. The firm may already have huge debts to pay to its creditors, or worse, may already be bankrupt. In such a case, the knight, under huge risk, acquires the firm that is in crisis. After acquisition, the knight then rebuilds the firm, or integrates it into itself.

Examples of white knights

1953 - United Paramount Theaters buys nearly bankrupt ABC 1982 - Allied Corporation buys Bendix Corporation in a situation involving the "PacMan defense". Allied is drafted in when the company that Bendix tries a hostile takeover on fights back by buying up Bendix stock in attempt to create a reverse hostile takeover. 1984 - Chevron Corporation acquired Gulf Oil after Gulf tried being a white knight to Citgo in 1982 in order for Citgo to avoid a hostile takeover by T. Boone Pickens. Pickens then turned his attention to Gulf, leading to the Chevron-Gulf deal. 1984 - Sid Bass and his sons buying significant interest in Walt Disney Productions as a defense against Saul Steinberg's hostile bid for the company. 1986 - George Soros's Harken Energy buying George W. Bush's Spectrum 7 1998 - Compaq merging with financially weak DEC 2001 - Dynegy attempts to merge with Enron to cover Enron's massive debts (the merger failed as it became obvious that Enron had been committing fraud, resulting in the Enron scandal). 2003 - SAP was seen by analysts as the most likely to help defeat Oracle's hostile bid for PeopleSoft, but it came to nothing. 2006 - Severstal almost acted as a white knight to Arcelor as the merger negotiations were in place between Arcelor and Mittal Steel 2006 - Bayer acted as a white knight to Schering as the merger negotiations were in place between Schering and Merck KGaA 2007 - Nissin Foods launching a friendly 37bn yen ($314m; 166m) bid for Myojo Foods after US hedge fund Steel Partners offered 29bn yen to buy the firm.[3] 2008 - JPMorgan Chase acquired Bear Stearns allowing Bear Stearns to avoid insolvency after Bear Stearns stock price suffered a precipitous decline, with its market capitalization dropping by 92%. 2008 - PNC Financial Services bought National City Corp. after National City was denied TARP funds in order to stay afloat due to increasing concerns that National City would fail due to the subprime mortgage crisis 2009 - Fiat takes over Chrysler, saving the struggling automaker from liquidation.

Hostile takeovers

A "hostile takeover" allows a suitor to take over a target company whose management is unwilling to agree to a merger or takeover. A takeover is considered "hostile" if the target company's board rejects the offer, but the bidder continues to pursue it, or the bidder makes the

offer directly after having announced its firm intention to make an offer. Development of the hostile tender is attributed to Louis Wolfson. A hostile takeover can be conducted in several ways. A tender offer can be made where the acquiring company makes a public offer at a fixed price above the current market price. Tender offers in the United States are regulated by the Williams Act. An acquiring company can also engage in a proxy fight, whereby it tries to persuade enough shareholders, usually a simple majority, to replace the management with a new one which will approve the takeover. Another method involves quietly purchasing enough stock on the open market, known as a "creeping tender offer", to effect a change in management. In all of these ways, management resists the acquisition, but it is carried out anyway. The main consequence of a bid being considered hostile is practical rather than legal. If the board of the target cooperates, the bidder can conduct extensive due diligence into the affairs of the target company, providing the bidder with a comprehensive analysis of the target company's finances. In contrast, a hostile bidder will only have more limited, publicly-available information about the target company available, rendering the bidder vulnerable to hidden risks regarding the target company's finances. An additional problem is that takeovers often require loans provided by banks in order to service the offer, but banks are often less willing to back a hostile bidder because of the relative lack of target information which is available to them.