Small firms in a growth industry enjoying expanding sales tend to make good targets for older, slower growth firms with a cash rich position
Firms in industries that have undergone deregulation.
Firms in industries with natural resources or undervalued assets or hidden assets if the market values of the assets is less than the cost to acquire the firm.
Liquid firms with stable cash flows.
Firms with unused debt capacity or overfunded pension plans.
Firms with low p/e ratios and positive earnings may inherit the higher p/e ratio of the acquirer.
Acquire a competitor of the bidder to raise anti-trust concerns.
Divest of a crown jewel to secure funding to pay a high dividend or to repurchase company stock.
Go private through a leverage buyout.
Attempt a pac man defense.
Recapitalize the company by giving shareholders cash and new common stock.
PRINCIPAL CHARACTERISTICS OF A POTENTIAL TAKEOVER CANDIDATE
FOURTEEN TACTICS FOR FIGHTING TAKE-OVER
1. PUT A SIGNIFICANT AMOUNT OF THE COMPANY=S VOTING STOCK INTO FRIENDLY HANDS
2. SPLIT STOCK
3. ELIMINATE ACCOUNTING PROFITS
4. STAGGER ELECTION OF DIRECTORS
5. REQUIRE 80 PERCENT OR MORE OF STOCKHOLDERS= VOTES FOR APPROVAL TO MERGE (RATHER THAN CUSTOMARY TWO-THIRDS)
6. TAKE ON A LARGE DEBT
7. AROUSE BUSINESS COMMUNITY, ESPECIALLY STOCKHOLDING GENERAL PUBLIC
8. INVOLVE GOVERNMENT, LEGAL SYSTEM, AND FEDERAL AGENCIES
9. CALL IN COMMERCIAL BANKERS AND CREDITORS TO HELP
10. BUY AS MUCH COMPANY STOCK AS POSSIBLE
11. SELL STOCK HELD BY COMPANY
12. OBJECT TO RAIDER=S STOCKHOLDERS
13. THREATEN WALKOUT OF KEY PERSONNEL
14. THREATEN TO LEAVE AND START AN IDENTICAL COMPANY
WHY RETURNS ZERO OR NEGATIVE RETURNS TO ACQUIRERS AT ANNOUNCEMENT
The full wealth effects may not be observed in the acquiring firm stock prices at the time of the bid because they were disguised in other information or were a relatively small component of acquirer wealth.
Competition between alternative bidders ensures that any excess returns are earned by the targets
The acquisitions are poor investment projects for the acquirers and
the wealth effects reflect this.
SOME SPECIFIC CONSIDERATIONS
Size of the target versus the bidder
Presence of other bidders to force up the bids
Costs of adhering to the terms of the Williams Act
Presence of a hubris.