Repelling the corporate shark: 5 times when companies foiled hostile takeover attempts

By: | Published: August 20, 2017 12:15 AM

It is indeed gripping to find instances in the history of business wherein corporations applied shrewd tactics to stave off unsolicited takeover bids by rival companies.

Business is like chess, with companies vying to get one up against each and often resorting to hostile takeovers to become bigger and better. (Image: Reuters)

Business is like chess, with companies vying to get one up against each. In their quest to become bigger and better, large companies sometimes even resort to hostile takeovers, ie, acquiring the controlling stake in another company without the company’s management or some prominent shareholders being in favour of it. In more developed markets such as western nations, this practice is quite common, where in several cases there is no single promoter/founder with a control over the majority stake. But at times, smaller companies have defied all odds and employed various strategies to foil the hostile takeover attempt. We look at a few such instances from recent memory:

Martin Lipton, a famous takeover lawyer invented the ‘poison pill’ and used the strategy to great effect in 1983. Under a poison pill strategy, the potential target issues securities to make the company less valuable in the eyes of a hostile bidder. Brown Forman Corporation, one of the largest spirits and wine maker, in an unwelcome bid decided to takeover Lenox, a major producer of bone china ceramics, collectibles and giftware. Brown Forman offered the public shareholders enticing $87 per share of Lenox, which were then trading at $60 per share at the New York Stock Exchange. Martin Lipton, working for Lenox, suggested to offer a ‘Special Cumulative Dividend’ to the company’s shareholders. The dividend was offered in the form of convertible preferred stock, which provided Lenox’s shareholders the right to purchase shares in Brown Forman Corporation at a deep discount in case Brown Forman successfully completes the hostile takeover. The strategy worked, as Brown Forman was forced to increase its offer and enter into a negotiated agreement to acquire Lenox.

Companies have found crafty defense tactics when confronted by a combative corporate shark. Not surprisingly, the anti-takeover defenses are sometimes referred to as shark repellents. In June 2003, Oracle Corporation, a technology major, initiated a $7.7 billion hostile takeover bid to acquire its smaller rival PeopleSoft Inc. PeopleSoft used a novel defense, wherein the company offered its customers a rebate of up to five times the license fee, in the event of a takeover by Oracle. The takeover battle went on for more than 18 months, and all the while PeopleSoft managed to prevent Oracle from completing the takeover bid, before eventually succumbing in January 2005.

In another case, in an interesting turn of events, AMP Inc, a leading maker of electronics equipment, employed a ‘white knight’ defense against a $10 billion takeover bid by Allied Signal Corporation, an aerospace and automotive parts producer. Under a white knight defense strategy, the company reaches out to a friendly bidder, and negotiates to be acquired by an ally rather than a hostile corporate. AMP struck a stock-for-stock swap deal for $11.3 billion with its white knight, Tyco Inc, a Bermuda based conglomerate.

Ronald Perelman, an American high profile investor was persistently pursuing Gillette, after successfully taking over Revlon Corporation. When it appeared that Perelman would make a tender offer for Gillette, the company responded by paying $558 million to Revlon in return for an agreement that it will not make a tender offer to Gillette’s stockholders. To be doubly sure, Gillette even paid $1.75 million to Drexel Burnham Lambert, a major investment banking firm. In return, Drexel Burnham Lambert agreed not to involved in an acquisition or attempted takeover of Gillette for a period of three years.

Carl Icahn, an American investor, bought more than 9.9% stake in Saxon Industries for approximately $7.21 per share. Afraid that he might become a significant shareholder in the company, Saxon Industries offered to repurchase Carl Icahn’s shares for $10.50. The high-profile investor was more than happy to tender his shares at a steep premium. This takeover defence wherein the company pays a substantial premium in return for the shareholder’s agreement that they will not initiate a bid for the company is called ‘greenmail’.

It is indeed gripping to find such instances in the history of corporations, wherein a shrewd strategy could stave off that unsolicited corporate shark from taking over one’s business.

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