New Takeover Defenses Questioned
M&A specialist Nicholas Benes has offered a revealing analysis of new strategies being adopted by Japanese firms to avoid acquisition. Titled Japan's New Takeover Defences Are Indefensible, Benes describes how measures that apparently seek to protect shareholder rights are actually designed to allow managements to "prevent deals, but avoid getting blamed for it." Benes outlines the most popular of these arrangements, the so-called advance warning plan, in this example:
Benes follows-up with a detailed scenario that demonstrates how this seemingly sensible proposal allows management to engage in various machinations that will ultimately kill any hope of a deal. Shareholders are the big losers, since the advance warning plan eliminates the chances of advantageous takeover bids and may well leave the company poorly positioned to succeed.
CHAKO Adds: When I advised Japanese companies' about their overseas M&A, some of the large Japanese corporations had a no-layoff policy after the merger, even when consolidation and streamlining would have been in the best interest of shareholders. Even though Japanese corporate and employment practices have changed dramatically since then, many Japanese corporate managers feel that U.S.-type merger practices that come with many layoffs doesn't quite fit them. It seems that currently there is a backlash in Japan against shareholder activism, as reflected by the Murakami incident and some of the new corporate laws. On the other hand, there certainly are cases where excessive poison pills and missed merger opportunities result in a loss of value creation. If investors react to these practices by refraining from owning such stock, at the end of the day the market will judge (by price) whether the company's defence tactics are acceptable or not.
M&A specialist Nicholas Benes has offered a revealing analysis of new strategies being adopted by Japanese firms to avoid acquisition. Titled Japan's New Takeover Defences Are Indefensible, Benes describes how measures that apparently seek to protect shareholder rights are actually designed to allow managements to "prevent deals, but avoid getting blamed for it." Benes outlines the most popular of these arrangements, the so-called advance warning plan, in this example:
Unwanted bidders intending to acquire more than 15% would be required to comply with a detailed list of seemingly reasonable information requests, and if based on that information the board could not devise a legal argument to label the bidder as an abusive acquiror, then the decision to deploy a poison pill would be put to shareholders. Only if shareholders rejected the poison pill could the takeover go ahead unhindered. If shareholders voted to deploy the pill based on the information provided by management, the directors could not be sued, since they could claim it was shareholders who had so decided.
Benes follows-up with a detailed scenario that demonstrates how this seemingly sensible proposal allows management to engage in various machinations that will ultimately kill any hope of a deal. Shareholders are the big losers, since the advance warning plan eliminates the chances of advantageous takeover bids and may well leave the company poorly positioned to succeed.
CHAKO Adds: When I advised Japanese companies' about their overseas M&A, some of the large Japanese corporations had a no-layoff policy after the merger, even when consolidation and streamlining would have been in the best interest of shareholders. Even though Japanese corporate and employment practices have changed dramatically since then, many Japanese corporate managers feel that U.S.-type merger practices that come with many layoffs doesn't quite fit them. It seems that currently there is a backlash in Japan against shareholder activism, as reflected by the Murakami incident and some of the new corporate laws. On the other hand, there certainly are cases where excessive poison pills and missed merger opportunities result in a loss of value creation. If investors react to these practices by refraining from owning such stock, at the end of the day the market will judge (by price) whether the company's defence tactics are acceptable or not.
posted by Bob at 4:28 PM
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