Hostile takeovers, proxy battles, and a company's stock's price?

Lets say that company abc is looking to acquire company xyz. Company abc offers a 5 dollar premium on xyz's stock price, which xyz turns down, but the offer is also half-cash, half (abc) stock. Both stocks are currently trading at the same price. Company abc has a market cap 7 times that of company xyz. How is this deal structured and what situations will effect the value of the bid?





Now say that company abc decides to enter into a hostile takeover with xyz. Company xyz does not have a staggered board but does have a poison pill which kicks in at 15%. Does this mean that company abc must resort to a proxy battle? How would the poison pill work otherwise? With a proxy battle and hostile takeover underway, what will happen to the target company (xyz's) stock price? What events will effect the takeover? How will the release of earnings by company xyz effect the offer by abc? Is it possible there could be a "takeunder" and what are the conditions for such an event?

Hostile takeovers, proxy battles, and a company's stock's price?
A poison pill is a defensive strategy that makes it more expensive for a hostile acquirer to takeover its target. It does not prevent the acquisition, but just makes it more expensive, sometimes prohibitively.


The poison pill works as follows: If the hostile acquiror purchases the targets shares, either in the open market or by tender offer, and exceeds the 15% level in your example, then new shares of stock (usually preferred stock) of the target are automatically issued to the current owners of the target's stock (but not to the hostile acquiror). These new shares have redemption rights so that the hostile acquiror would have to spend more money to acquire these shares (and there can be other provisions that drag out the time for redeeming the shares). In essence, the hostile acquiror ownership interest is diluted.


A company's board can vote to remove the poison pill at any time.


Hostile acquirors faced with poison pills will usually undertake a proxy battle in order to remove the target's current board and then vote to waive or remove the poison pill so that the hostile acquiror can proceed with a merger transaction or tender offer.


It's difficult to predict what will happen to a target's stock price during these battles. It all depends on how the current offer measured up to what the market thinks is the true value of the target's stock. Sometimes the acquisition price is lowered by the hostile acquiror if they know no higher offers are forthcoming. This could also happen if earnings decline and the business prospects of the target take a sudden turn for the worse. Sometimes the bid is increased even after a proxy battle.
Reply:This is precisely the reason why there are so many incompetent, unethical, unintelligent people in business, finance and on Wall Street. You can't even do your own homework? Get a life!

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