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When the friendly approach of a takeover through a negotiated settlement is ot successful then the acquirer may sometimes try to limit the options available to the management of the target by forcing them to take immediate decision before initiating a tender offer. This is done by contacting the board of directors and making a formal acquisition proposal with an expression of interest in acquiring the target. The letter also contains an implied intentions to go directly to the stockholders with a tender offer if they do not receive a positive response. It may also be accompanied by a public announcement of the bidders intent to make a tender offer. This strategy is called bear hug. The bear hug is mainly intended to move the board to a riduciary responsibility to the shareholders. Some target shareholders may file lawsuits against directors who vote against the said acquisition proposal (mainly when the offer price is at a substantial premium to the targets share price).
b) POISON PILL Often referred to as shareholder rights plans, poison pills are a new class of securities that a company issues to its current shareholders. Because pills are issued as a dividend and the board has the exclusive authority to issue dividends, a pill can often be adopted without a shareholder vote (unless the firms bylaws limit such action). Consequently, poison pills and be adopted not only before but also after the onset of a hostile bid, which means that even a company that does not have a poison pill in place can be regarded as having a shadow poison pill that could be used in the event of a hostile bid. Such pills could be issued as rights offerings to the firms current shareholders, other than the bidder, which if exercised would substantially dilute the bidders ownership position. Poison pill securities have no value unless an investor acquires a specific percentage (sometimes as low as 10%) of the target firms voting stock. If this threshold percentage is exceeded and the pill is a so-called flip-in pill, the poison pill securities are activated
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Preferred Stock Plans: this is the typical preferred stock, which is registered with the SEC, and is paid as a dividend to common shareholders. This preferred stock has an important feature: it is convertible to common stock only after the takeover is completed. This strategy both dilutes the ownership of the acquiring company (which is highly undesirable for the acquirer) as well as increases the cost of the merger.
B.
Flip-Over Plans: this allows shareholders to purchase shares of common stock in the new company at a substantial discount after the merger. While this approach is simpler to implement than a preferred stock plan, it does not prevent a company from purchasing a controlling share of the target.
C.
Flip-In Plans: this strategy provides shareholders of the target company with the right to purchase additional stock in the target company at substantial discounts. The right to purchase stock occurs before the merger is finalized, and the provision is usually triggered when the acquirer owns greater than a 20% share of the target's stock.
D.
Back-End Plans: this approach provides shareholders of the target company with the right to cash or debt securities at a price established by the company's Board of Directors. By doing so, the target company has essentially established an above-market selling price for the company.
E.
Poison Puts: this is a bond that allows investors to cash in the security before it matures, if the target company is engaged in a hostile takeover attempt. The poison put places pressure on the acquiring company to raise substantial sums of money to pay off the owners of the puts.
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Golden parachutes make it easier to hire and retain executives, especially in industries more prone to mergers.
2)
They help an executive to remain objective about the company during the takeover process
3)
They dissuade takeover attempts by increasing the cost of a takeover, often part of a poison pill strategy. Example One of the most famous golden parachutes was received by Stan ONeal, the chairman and chief executive of Merrill Lynch at the time of the financial crisis of late 2007. When he was ousted in October of that year, he received a severance payment of approximately $160 million.
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d) SILVER PARACHUTE A form of severance paid to the employees of a company that is taken over by another company. Silver parachutes include severance pay, stock options and bonuses. Silver parachutes are generally extended to a large number of employees and often appear as clauses in hiring contracts that call for lucrative severance packages if an employee leaves the company, or, in particular, after a merger, acquisition or other change in corporate control Silver parachutes are similar to golden parachutes, which are received by the top executives in the corporation. A silver parachute is typically smaller, but more employees are eligible to receive one. Golden and silver parachutes are named such because they are intended to provide a "soft landing" for employees who lose their jobs either through corporate restructuring, mergers or other reasons. In certain cases, a silver parachute clause specifies that the benefits go into effect only if the company is taken over by another company, resulting in the employee losing his or her job. E) GREEN MAIL Greenmail (introduced earlier) is the practice of paying a potential acquirer to leave you alone. It consists of a payment to buy back shares at a premium price in exchange for the acquirers agreement not to commence a hostile takeover. In exchange for the payment, the potential acquirer is required to sign a standstill agreement, which typically specifies the amount of stock, if any, the investor can own, the circumstances under which the raider can sell stock currently owned, and the terms of the agreement. Courts view greenmail as discriminatory because not all shareholders are offered the opportunity to sell their stock back to the target firm at an abovemarket price. Nevertheless, courts in some states (e.g., Delaware) have found it to be an appropriate response if done for valid business reasons. Courts in other states (e.g., California) have favored shareholder lawsuits, contending that greenmail breaches fiduciary responsibility.
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CROWN JEWEL
In business, when a company is threatened with takeover, the crown jewel defense is a strategy in which the target company sells off its most attractive assets to a friendly third party or spin off the valuable assets in a separate entity. Consequently, the unfriendly bidder is less attracted to the company assets. Other effects include dilution of holdings of the acquirer, making the takeover uneconomical to third parties, and adverse influence of current share prices. Crown jewels refer to the most valuable assets and parts of the company. According to this strategy, the target company has the right to sell its best and most profitable assets and valuable parts of the business to another party if a hostile takeover occurs. This discourages hostile takeovers as it makes the target company less attractive For example, a telecommunications company might have a highly-regarded research and development (R&D) division. This division is the company's "crown jewels." It might respond to a hostile bid by selling off the R&D division to another company, or spinning it off into a separate corporation.
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Applications of the LBO Analysis Determine the maximum purchase price for a business that can be paid based on certain leverage (debt) levels and equity return parameters. Develop a view of the leverage and equity characteristics of a leveraged transaction at a given price. Calculate the minimum valuation for a company since, in the absence of strategic buyers, an LBO firm should be a willing buyer at a price that delivers an expected equity return that meets the firm's hurdle rate.
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compensation packages and designation can take place normally. 4. There are ego clashes between the top management and subsequently lack of co-
ordination among them may lead to collapse of company after merger. This problem is more prominent in cases of mergers between equals. 5. There is also a separation anxiety among the employees because they think some of their co-workers will be leaving the company. The atmosphere of apprehensions leads to companywide rumours. The employees loose faith in their organization and tend to become demotivated. 6. Employees are the main victims when M & A takes place. They may be hurting themselves by trying to cope with new changes. When they realize that their potential
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hierarchical level are some of the thoughts which always remain in the minds of employees of both the company. 9. There is also lot of reorganization & restructuring in the company during the days when M&A process is going on .The process of M&A by which company is bought or sold can prove difficult, slow and expensive. This M&A transaction typically require six to nine months and involve many steps. Locating parties with whom to conduct transaction forms one step in the overall process and perhaps it is the most difficult step in the transaction. This process of M&A has a great impact on the work culture during those days as it disturbs whole organization of the company. 10. In an acquisition the buyer assumes the dominant parent role and the acquired company assumes the subordinate role, acting in the role of stepchild. Just as step parents may deny stepchildren certain family resources acquired company may also experience
similar after an acquisition takes place. This situation is caused due to lack of fit between the two organizations. Such lack of fit is an issue and it has a great impact on the acquired company as it affects its work culture, organization and mainly on the employees working in the company. 11. The uncertainties of M&As shift the focus of employees from productive work to issues related to interpersonal conflicts, layoffs, career growth with the acquirer company, compensation etc .Moreover, employees are worried about how they will adjust with new colleagues. The merger involves downsizing, hence the first thing that comes to the mind of employees is related to their job security. Merger also leads to change in the well defined career paths of employees. Due to these reasons employees find
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WAYS TO OVERCOME IMPACT OF M&A ON EMPLOYEES & WORKING CONDITIONS 1.Firstly organization must displaced effectively develop and implement assistance program for
extended benefits, retaining program and outplacement activities. 2. Strong emphasis needs to be placed in determining whether the acquired firms personnel is a good fit for the acquiring organization and to whether the mass lay off can be avoided. Moreover communication from the executive team with employees in the pre-acquisition phase needs to be consistent so that anxiety levels among the personnel can be kept at low level. 3.Moreover a company not only needs to select a right target, but also must have culture in place that accepts the acquisition as quickly as possible. 4.There is need for developing and executing effective employee communication, particularly conveying the employees that how the transaction will impact organizational members. Communication between the members of transferor and transferee Company should be
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QUESTION4 ) STEPS TO HANDLE HR ISSUE DURING M &A The need for involvement of HR managers starts from the beginning of M&A process i.e at the audit or due-diligence stage. When the acquirers has the maturity and experience ,it can have a greater impact on the integration phase than if HR is brought after the merger has take place. If HR is valued by the acquiring companys management , it made it imperative to think them that people can be greatest asset, challenge and liability. Before the finalisation of the merger deal the acquiring companys HR examine the different areas, evaluates different courses of action, in order to have a smooth transition. The HR manager has to minimise the uncertainty prevaling during the merger process and must strengthen the communication channel to deal with the issues like morale and productivity. Further , after the merger being implemented the role of HR manager becomes that of consultant to reduce interpersonal conflicts, role ambiguity and confusing procedure. HR manager must create a smooth transition process and review the process with newly formed teams ,manager and supervisors. The role of HR manager is also crucial when it comes to compensation related issues. This is problematic when the 2 companies have desperate systems. Another issues the HR manager has to deal, is redundancies. In any merger there be termination which almost create hard feelings and among senior managers, crushed egos. The HR manager has to give stress is on the examination of policies, practices and past actions of the acquired company and find some commonalities upon which the entity can be build. Thus, in general the HR manager play a truth teller, coordinator, administrator , councellor , coach and agent of change for the leaders and organization.
HR plays important role at every phase in the process of international M&A PRE-COMBINATION:
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Human Resources can add value to the M&A life cycle in the following ways:
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