Tag Archive: hostile takeover

The M&A Litmus Test: Part 1

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How effective is your board? M&A can be your litmus test. If you are making a buy/sell/merge decision, the experience will reveal your board’s capabilities in myriad areas, especially these:

  1. M&A “IQ”
  2. Fiduciary Duties
  3. Strategy
  4. Information Flow, and last, but not least
  5. Good Business Sense

 

 

 

 

Today is Day One of your M&A Litmus Test, so we’ll start by testing your board’s…

 

… M&A IQ.

 

Does your board know why M&A matters?  The wise board won’t leave mergers and acquisitions to external advisors—or wait until the last minute to bring them in. The decision to buy or sell a company of significant size is clearly a matter meriting board attention. On the sell side, time may not be on your side.

Directors serving on public company boards understand that any public company, by definition, is vulnerable to a hostile takeover (since any person with enough funding can buy their shares on the open market through a tender offer and gain control). In 2010, so far there have been nearly 20,000 announced deals worth more than $1 trillion. Some 7 percent of all announced deals worldwide—nearly 1,400 transactions—were unsolicited (hostile) bids.

Directors serving on private company boards need to understand that sometimes M&A is the company’s only exit strategy when the founder wants to retire and there is no next generation of family and/or employees to continue the legacy.

Next, you’ll be tested on fiduciary duties in the sale of a company.  See you in class!

Shout Out to Sources

Are They Being Served?

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By bizarre coincidence in the week of FinReg and proxy plumbing, I came across a particularly apposite episode of the ancient British sitcom, Are You Being Served? on Maryland Public Television. Grace Brothers department store was facing a hostile takeover and the cast were concerned that they would face a proxy fight. (I paraphrase, of course: Although there were many mentions of shareholders in the script, Mr Humphries, Captain Peacock, Mrs. Slocombe, et al., did not get into the details of proxy fights.) Transparency is not a core value at Grace Brothers, for the cast came up with a plan to impersonate missing retail investors in order to ensure a majority vote for the status quo.

In real life, 30 years after this series was made, the current flurry of activity around corporate governance may not be raising many laughs: Will the attempt to modernize the proxy process actually result in a higher voter turnout, better understanding of long-term value and improved shareowner communications? We’ll have to hope it will “ride up with wear,” as Mr Humphries used to promise… Keep up with this issue on NACD’s regulatory and legislative issues website.