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1706131414 Tedy Hermawan

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1806248406 Aditya Tata Yuga
1806248431 Aswalmi Gusmita
Takeover Contest Processs

Bypass Offer

Bear Hug

Bid Jump
Tender Offer
Because the Williams Act is the key piece of federal legislation that regulates tender
offers, the court established a definition of a tender offer, naming eight factors that
are characteristic of a tender offer.
Advantages of Tender Offers over Open Market Purchases

Tender Offer Open Market

Total cost averaged No guarantee clear control (51% share)

approximately 13% of the the bidder is not bound to purchase the
post-tender offer market tendered shares unless the desired
price of the target’s shares number of shares has been tendered
(Smiley, 1976) Difficult to keep secret
Stock price easily increase
Stock could be raided
Hold Out Problem
Minority The bidder who becomes mired in a minority position
faces the following alternatives:

bidder • Do a tender offer for additional share

In this case, the bidder incurs the tender offer expenses
in addition to the costs of the open market purchasing
• Begin a proxy fight
This is another costly means of acquiring control, but
the bidder, after having already acquired a large voting
position, is now in a stronger position to launch a proxy
• Sell the minority stock position
These sales would place significant downward pressure
on the stock price and may result in significant losses.
Arbitrage Arbitragers and Takeover Tactics
• Theoretical risk-less arbitrage can occur when two

(Arbitrager) identical assets are bought/sold at different prices

• Risk arbitrage, also known as merger arbitrage, is an
investment strategy that speculates on the successful
completion of mergers and acquisitions. An investor
that employs this strategy is known as an arbitrageur.
Risk arbitrage is a type of event-driven investing in that
it attempts to exploit pricing inefficiencies caused by a
corporate event.
Arbitragers and Target Vulnerability
• From a bidder’s perspective, if many “long-term”
target shareholders sell out to “short-term”
arbitragers, this is a positive development.
Arbitrage Return
Example :
RAR = GSS/I x (365/IP)
Assume that Company A makes a $50-per-share offer
for Company B, which now trades at $45 per share. The
RAR = Risk Arbitrage Return
gross stock spread is $5. Also assume that the deal is
GSS = Gross Stock Spread expected to close in 90 days. If the deal closes, then the
risk arbitrager’s return would be as follows :
I = Investment by Arbitrager
IP = Investment Period
RAR = ($50 − $45)∕$45 × (365∕90)
GSS = OP – MP = 0.451 or 45.1%

OP = Offer Price
MP = Market Price
Proxy Fights
Proxy Fights or Proxy Contest or Proxy Battle or Proxy War

An attempt by a single shareholder

or a group of shareholders to take
control or bring about other
changes in a company through the Regulation of Proxy Contest
use of the proxy mechanism of Section 14(a) of the 1934 Act (SEC
corporate voting. regulation)
• Proxy & M&A (Schedule 14A)
• Proxy & Insurgents (Rule 14a-8;
Schedule DFAN14A)
• Shareholder Nominations of Board
(Rule 14a-8)
• Proxy Fight Data
1. Contests for seats on the board of directors
Types of Proxy Contest
2. Contests about management proposals

1. Insufficient voting support

Proxy Contest : 2. Poor operating performance
Increase proxy
Insurgents’ Viewpoint fight success
3. Sound alternative operating

Dead Shares
Costs of a Proxy Fight
• Less expensive alternative to tender offer
• Losers do not have way to recapture losses
• The cost usually not recoverable
• Many costs for conducting proxy fights
• Insurgent/activist pay the cost by themselves
Proxy Advisory Firms
Services Giving Decision-making
Role Result
recommendations process

Market View

Lower market value Lower operating Higher employee

performance turnover

SEC • April
• $ 2.000 investment
Wealth Effects of
Proxy Contest
Dissident/activist/insurgents is smarter,
and winning the contests

Increase value of the shareholder votes

(Dodd & Warner,

Early Research : Later Research :

Dodd & Warner, 1983 = Positive Negative
positive performance
DeAngelo & DeAngelo, 1989 = Bordstadt & Zwirlein,1992 Ikenberry &
increase 4.85% (two-day window, 18,76% (40- Mulherin and Poulsen, 1998 Lakonishok, 1993
day window Listokin, 2009
Long-Term Successful
Change of
Effects of Proxy proxy 3 years
Contests DeAngelo & DeAngelo, 1989

Poor performance ➔ Proxy Contest

Managerial inefficiency ➔ Proxy Fights Tender Offer
(Sridharan & Reinganum, 1995) versus a Proxy
Negative abnormal returns and deteriorating operating performance prior
to the announcement of the proxy contest (Ikenberry & Lakonishok)

Combination of a Proxy Fight + Tender Offer = Effective ancillary tool

Proxy Fight and Dismantle target’s antitakeover defenses
a Tender Offer Replace the target board or director who opposed