Abstract: Methods of protection against a hostile takeover. Mechanism for protecting companies from takeovers

Lecture No. 8. Protection from hostile takeover.

Lecture plan.

Features of the Russian practice of applying protective measures against hostile takeovers.

Classic ways to counter hostile takeovers.

The set of measures to counter hostile takeovers is divided into two parts: preventive And active Events. Task preventive measures– reduce the likelihood of a hostile takeover. Active events are intended for immediate defensive actions after the start of a hostile takeover.

The following types of preventive (precautionary) measures are known:

"Poisonous pills,

Amendments to the statutory documents,

"Poison pills." These are various options for additional securities issued by a company in order to reduce its attractiveness to a potential buyer. The most commonly used are two types of protective “pills”: external And internal .External "pills" give the right to shareholders of a company under threat of takeover to purchase shares of the aggressor company at a significant discount. Internal "pills" provide a similar right in relation to the own shares of the company that is the target of a potential takeover.

The release of “poison pills” is associated with the possibility of the so-called outbreak. "trigger" event. Such an event could be:

acquisition of 20 percent or more of the company's shares by any legal entity or individual;

tender offer for the purchase of 30 percent or more shares.

In most cases, “poison pills” are issued by decision of the board of directors and can be withdrawn at a nominal cost at any time before the “trigger” event occurs. This "poison pill" policy provides the board with room to maneuver in the event of, for example, a friendly acquisition offer.

Poison pills were invented by the famous American takeover lawyer Martin Lipton as a method of defending against a hostile takeover. They were first successfully used in 1982 in the USA in the fight between the companies EL Paso Electric and General American Oil. In the 1990s, poison pill defense became commonplace for most American corporations.

The development and constant improvement of methods of protection against hostile takeovers has led to the emergence of various forms of “poison pills”:

Issues of preferred shares;

Rights Issues;

Bond issues with put options.

Issue of preferred shares . This is the first generation of "poison pills".

A target company using this protection distributes dividends to its shareholders in the form of convertible preferred shares. In addition to fixed dividends on such shares, shareholders receive certain additional rights in the event of a “trigger” event. In particular, the terms of the issue of these shares may provide for all their owners the right to demand from the joint-stock company the redemption of their shares for cash at the maximum price paid by the aggressor buyer for the shares of the target company during the last year. In addition, if the aggressor manages to carry out a takeover, then the preferred shares of the target company can be converted into ordinary shares of the aggressor at market value, determined similarly to the previous case.

Rights issue. Poison pills in the form of preferred stock issues had certain disadvantages, so over time they were replaced by a new generation of "poison pills" in the form of rights issues. Rights are a type of call option issued by a joint stock company that gives shareholders the right to purchase shares at a fixed price over a specified period of time (usually at least 10 years). Rights to purchase shares are distributed to shareholders as dividends.

In accordance with the terms of the issue, the right to purchase shares begins to operate only upon the occurrence of a “trigger” event. It is at the time of such an event that the rights certificates are sent to shareholders. As in the case of preferred shares, the issuer stipulates in the terms of the rights issue the possibility of their withdrawal during the entire circulation period for a symbolic price until the occurrence of a “trigger” event.

Issuing bonds with a put option . This is the third generation of "poison pills". The issue of such bonds provides the right of their owner to demand redemption of bonds at par in the event of a hostile takeover. The issuer, resorting to the use of this “poison pill,” expects that in the event of a takeover, presenting bonds for redemption may create serious problems for the absorber due to a lack of financial resources.

Amendments to the statutory documents. Changes to the charter of a joint stock company are the most common and least costly method of preventive protection against takeover. Various changes made to the articles of incorporation of a company in fear of a hostile takeover typically include:

Multi-stage conditions for elections to the Board of Directors,

Provision on qualified majority for making decisions on mergers and acquisitions,

Double capitalization, etc.

"Divided" board of directors. The “divided” board clause is intended to create obstacles in the way of a bully during the process of changing the board of directors. Its essence is to divide the board of directors into several groups, and at the annual meeting no more than one group of directors can be re-elected. The most typical option is to divide the board of directors into three groups with one third of the directors elected annually. Thus, it may take the aggressor more than two years to gain full control over the acquired business.

"Supermajority" clause. This clause provides that approval of a takeover transaction requires more than a simple majority of votes, i.e. “supermajority” (qualified majority). A typical example of a supermajority is 75-80% of the votes; in some situations its size can reach 90-95%. A super-majority clause may contain an overriding provision whereby the super-majority clause does not apply if the board of directors of the target company approves the takeover.

Double capitalization. Dual capitalization involves having two or more types of a company's common stock outstanding with different numbers of votes per share. The main purpose of dual capitalization is to provide more voting rights to shareholders who are loyal to the target company.

The most typical example of double capitalization is the additional issue of shares with a greater number of votes compared to the previously issued shares of the company. In 1988, the US Securities and Exchange Commission banned such stock issues that would reduce the voting power of existing shareholders. However, this prohibitive normative act does not have retroactive effect, i.e. does not apply to those US companies that were dual capitalized before 1988.

"Golden and silver parachutes." Special agreements with senior executives, managers or personnel of a company to pay them a one-time compensation in the event of their voluntary or involuntary resignation at the time of acquisition or for some time after it. Agreements on “golden” and “silver” parachutes can be concluded for a certain period, but in most cases they contain the so-called. An "evergreen" clause under which the initially specified period of one year is automatically extended by one year unless a hostile takeover occurs.

Active protection against hostile takeovers includes a wide range of measures:

Greenmail and standstill agreements,

"White knight",

"White Squire"

Recapitalization,

Litigation,

Defense of Pac-Man.

Greenmail is called a buyback of shares from the buyer at a premium. The payment of greenmail is usually accompanied by the conclusion of a standstill agreement, according to which the buyer agrees not to purchase additional shares beyond a certain number specified in the agreement. For this consent, the buyer receives a fee.

"White knight" - a friendly company that agrees to become the best buyer.

"White Squire" - a type of “white knight”. Unlike the latter, the “white squire” carries out a friendly takeover not for himself, but to protect the partner company.

Recapitalization - changing the capital structure by sharply increasing the share of borrowed capital with the aim of deliberately worsening the financial condition of the company that has undergone a hostile takeover. This is essentially turning the company into its own “white knight.”

Litigation - all sorts of legitimate legal actions aimed at complicating the takeover process. The most accessible and widespread form of protection against hostile takeovers.

Pac-Man Defense - a mirror response tender offer to the buyer to purchase his shares. The most radical measure of protection against hostile takeovers (defense through attack).

2. Features of the Russian practice of applying protective measures against hostile takeovers.

Measures used in Russian practice of countering hostile takeovers also include preventive and active protective measures. However, their list differs significantly from the classical methods of protection used in foreign countries.

In Russia, specific methods of protection have become widespread, based on direct violation of the law or on the use of its shortcomings. Due to the imperfection of Russian legislation, many civilized methods of combating hostile takeovers are not applied at all or are applied in a very unique way.

“Poison pills” in Russian conditions . The release of “poison pills” is not provided for in Russian legislation, however, it is not prohibited. In foreign practice, as already noted, the issue and placement of special rights in the form of “poison pills” is carried out by decision of the board of directors of a joint-stock company. A similar procedure is defined by the Russian Law “On Joint Stock Companies”.

Thus, in Russian conditions, nothing prevents the issue of rights to purchase shares, however, certain provisions of the law “On Joint Stock Companies” seriously limit the possibility of using the issue of rights as a “poison pill”. For example, Article 36 of this law establishes that payment for shares is carried out at market value, but not lower than their nominal value. Due to the above legislative restrictions, “poison pills” are used in Russian practice in a very unique way.

In Russia, “poison pills” are commonly understood as various actions of the target company’s management aimed at creating all kinds of obstacles to the aggressor company. The most common types of Russian “poison pills” are:

Bonded deals concluded shortly before the seizure of the enterprise;

Issuing bills for astronomical amounts;

Leasing real estate for long-term lease;

Concealment or destruction of all documents of the target company;

Dividing the target company into two enterprises.

"Supermajority" clause . Russian companies do not have the opportunity to resort to this method of protection, since the “super-majority” clause is actually defined in our country by law and does not require additional changes to the company’s charter. According to Russian law, 75% of the votes are required to make decisions on all the most important issues in the life of joint-stock companies, including mergers and acquisitions. Based on this, the target company in Russia has only one way to block any attempts at a hostile takeover - controlling more than 25% of the votes of its company's shareholders.

Double capitalization is also banned in Russia, although this ban applies only to ordinary shares. The Russian Law “On Joint Stock Companies” provides that each ordinary share of the company provides the shareholder with the same amount of rights. In other words, Russian joint stock companies cannot issue ordinary shares with different amounts of rights granted to shareholders.

As for preferred shares, they can be used for double capitalization in Russia. To do this, it is enough to make appropriate changes to the charter of the joint-stock company, which give voting rights to preferred shares of a certain issue.

"Golden and silver parachutes." This is the only preventive protective measure that can be used in Russia without restrictions. Russian legislation allows the inclusion of a special clause in the employment contract with the top manager of the target company, by virtue of which, in the event of early termination of his powers, he receives significant monetary compensation. However, Russian practice of protection against hostile takeovers so far very rarely uses the capabilities of “golden and silver parachutes.”

Active defenses against hostile takeovers in Russia . The situation with the use of classical active means of protection against hostile takeovers in Russia is largely similar to the picture described above with preventive measures. For example, the use of greenmail in Russia is practically impossible and can easily be challenged as violating the rights and interests of other shareholders not participating in the repurchase of shares.

The fact is that in Russia, each shareholder - the owner of shares of certain categories, the decision to purchase which has been made, has the right to sell his shares, and the company is obliged to purchase them. In this regard, it is impossible in practice to make a separation between the ordinary shares of the greenmailer and the remaining shareholders. Consequently, when a decision is made to repurchase shares at a premium, there is a high probability that all shareholders will offer their shares for repurchase. In such a situation, the target company will be obliged to carry out a proportional repurchase of shares, and, accordingly, the planned repurchase goals will not be achieved.

Recapitalization . In Russian conditions, the use of recapitalization of a target company is difficult, primarily due to the underdevelopment of the corporate bond market. Currently, only very large Russian companies have real access to the corporate bond market. Most Russian companies experience no less difficulties in attracting bank loans, since recapitalization requires attracting a significant amount of borrowed funds.

Invitation of a “white knight” or “white squire” . Both types of such protection, in principle, can be easily used in Russian practice. However, it is difficult to find a “white knight” in Russia, since in our country there are still practically no investment banks that are usually involved in selecting suitable candidates. In addition, the “white knight” most often conditions his participation in the fate of the target company by certain concessions, which in Russian conditions can quickly become the subject of litigation as violating the legal rights and interests of shareholders.

If a “white squire” is involved, difficulties may arise associated with registering an additional issue of shares: Russian legislation does not provide for the possibility of reserve registration, as, for example, in the United States.

Defending Pac-Man . In its pure form, such protection is impossible in Russia due to the lack of legislation on tender offers. In the Russian version, protecting Pac-Man is a complex of all measures to actively combat the aggressor company:

Appeals to law enforcement agencies with statements and complaints about the illegal actions of the aggressor company in purchasing shares;

Appeals to the courts with claims against the aggressor company;

Attracting wide public attention to what is happening

Purchasing shares of enterprises owned by the aggressor company;

Disruption of individual events of the aggressor company.

Litigation . This is the only active protective measure from the classic set of foreign companies that is applied in Russia in a similar way. Moreover, the insufficient development, and often the complete absence of regulations relating to various aspects of mergers and acquisitions, creates extensive opportunities for the use of litigation as one of the main methods of combating hostile takeovers in Russian practice. Antimonopoly legislation is especially convenient for effective judicial counteraction to hostile takeovers in Russia.

Specific Russian methods of protection against a hostile takeover . Considering that the use of most classical foreign methods of combating hostile takeovers in Russia is not possible or ineffective, Russian companies have developed their own methods, characteristic only of domestic practice. Specifically Russian methods of protecting a business from a hostile takeover are usually classified into two groups:

Strategic methods of protection;

Tactical methods of defense.

TO strategic Methods of protection against hostile takeovers in Russia include:

Formation of a secure corporate structure.

Ensuring effective economic security of the enterprise.

Creating conditions that prevent the purchase of shares.

Creation of a system for monitoring accounts payable.

Formation of a secure corporate structure . The essence of this strategic method of protection lies in the formation of a corporate business structure that would almost completely exclude the possibility of a hostile takeover. This method is based on the principle of dividing the company’s property complex into parts, which is usually achieved using two schemes:

Reorganization of a potential target company in the form of spinning off several small companies from it that are not interesting from the point of view of a hostile takeover.

Transfer of the most attractive assets from the point of view of the aggressor companies to subsidiaries linked to each other by cross-shareholding.

Ensuring effective economic security of the enterprise . To be always ready to repel an attack on a business, its owners must constantly monitor the current situation. To do this, you need to organize your own professional economic security service, which will monitor everything that happens around the target company.

Creating conditions that prevent mass purchases of shares . The most common scheme to thwart aggressive mass buying of shares is the design of cross-shareholdings. The essence of cross-shareholding is as follows. A potential target company creates a subsidiary with a dominant share in the authorized capital (51 percent or more). The remaining founders of this subsidiary are minority shareholders, who contribute their shares of the parent company as a contribution to the authorized capital. Thus, the subsidiary consolidates a controlling stake in the parent company, which guarantees full control over the parent company.

Creation of a system for monitoring accounts payable . Effective control over accounts payable can be carried out in various areas:

Avoidance of overdue debts.

Refusal of contractual relations with unknown companies.

Creation of a special company accumulating accounts payable.

Sales of all finished products through a controlled trading house.

To the number tactical Measures to combat hostile takeovers in Russia include:

Counter-purchase of shares.

Asset restructuring.

Blocking of a block of shares acquired by the aggressor.

Work with shareholders.

Defense through attack.

Counter-purchase of shares . This method of tactically combating hostile takeovers is the simplest, but also the most expensive. The main purpose of a counter-purchase of shares is to prevent the aggressor company from acquiring a controlling stake in the target company.

Restructuring of the target company's assets . Blocking the block of shares acquired by the aggressor company The target company, using completely legal legal mechanisms, blocks the block of shares acquired by the aggressor company. To do this, you need to find any formal clue in the actions of the aggressor company to buy shares associated with a violation of current legislation. Along with blocking the aggressor, an additional issue of shares is simultaneously carried out in order to reduce the aggressor’s share of participation in the authorized capital of the target company.

Work with shareholders . This measure is not of a legal nature. It is associated with identifying and suppressing unfriendly actions of certain groups of shareholders that help the aggressor company, conducting explanatory work with shareholders in order to maintain their loyal attitude to the target company.

Defense through attack . It is a counter attack on the aggressor company, including:

Purchasing shares of the aggressor company or shares of enterprises owned by it.

Filing statements and complaints to the courts and law enforcement agencies regarding the unlawful actions of the aggressor company.

Organization of relevant publications in the press.

Disruption of the aggressor company's activities aimed at capturing the target company.

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Sometimes it's good and sometimes it's bad

If we summarize all of the above, we have to admit that empirical data on the impact of protection methods on the welfare of company shareholders does not provide a clear answer to the question of who wins and who loses from the use of protection. Only one thing can be said for sure: protection against a hostile takeover is always beneficial for the current management of the company, or at least does not cause any significant harm to it.

As for shareholders, the situation here is not so clear. They may or may not gain by arming their company with hostile takeover defenses. The most important factors determining the size of winnings and losses are the quality of the company's corporate governance and the specifics of the type of business in which the company is engaged.

While we have already spoken about the quality of corporate governance, not a word was said about the specifics of the defending company’s business and the impact of this specificity on protection from a hostile takeover. What is this specific business and what is its influence? We are talking here about an obvious fact: as the risk of a company’s business increases, not only the probability of receiving excess profits begins to increase, but also the probability of recording excess losses. And if so, then the likelihood of a company being taken over begins to increase: as soon as a company records an excess loss, its quotes immediately fall and it becomes an attractive target for takeover.

Naturally, it is now impossible to blame the company manager for the fall in stock prices. The company is simply engaged in an extremely risky business. In order for such a company to be able to afford to exist normally (so that it does not get taken over after every sharp decline in its profits), it is in the best interests of shareholders to equip it with methods to protect it from a hostile takeover. Another example of a specific business is a business that is inextricably linked with the launch of large long-term investment projects. The likelihood that such a company's shareholders will benefit from its armament with hostile takeover defenses is also very high.

There is also an opinion that the benefits and costs of protection from a hostile takeover can be determined by the degree of awareness of the owners about the professional level of the hired manager. The more complete the information about the manager’s professional level and the higher this level, the higher the benefits of equipping the company with protection against a hostile takeover, and vice versa 69
A formal model for such a scenario was developed in 1997 by Sarig and Talmor ( Sarig, ОTalmor, E.(1997) In Defense of Defensive Measures. Journal of Corporate Finance, Vol. 3, pp. 277–297).

Here, hostile takeover defense protects the manager's unique management talents from attack by less informed market participants. Less informed market participants, not knowing the exact qualitative characteristics of the manager, may mistake him for an ineffective manager and try to hostilely take over the corporation. The current owners who know the manager well do not allow them to do this, equipping their company with protection against a hostile takeover.

Let us present the factors that determine the final impact of protection against a hostile takeover on the welfare of the company's owners.

Probability positive

The risk of investment projects launched by the company increases;

The average payback period for investment projects launched by the company is lengthening;

The company's current performance indicators are growing;

The quality of corporate governance of the company is improving;

The quality of information available to owners about the professional level of current management is improving.

Probability negative The impact of hostile takeover protection on the welfare of a corporation's shareholders increases as:

The company's current performance indicators begin to fall;

The company's ownership structure is becoming increasingly dispersed - among the company's owners there are no owners of large blocks of ordinary voting shares.

Naturally, the above list of factors is far from exhaustive. In addition, the same factor can have a different impact on the welfare of owners, depending on which method of protection against a hostile takeover was applied by the company. Therefore, we will return more than once to the issue of the impact of protection against a hostile takeover on the welfare of company shareholders.

Wait a second though! We almost forgot one of the most interesting studies on managers' motivations for arming their companies with hostile takeover defenses. This is a study conducted in 1984 by Walkling and Long 70
Walkling, R., Long, M. RAND Journal of Economics, Vol. 15, pp. 54–68.

From the point of view of these researchers, the manager of the target corporation will make the decision to oppose or not to oppose the tender proposal put forward, focusing solely on his own well-being. We have already heard about this, the reader will say, we would like something new.

What is new is that, according to Walkling and Long, the main factor in a manager's opposition to a tender will be the impact that the takeover will have on his compensation. The more negative the manager's expected impact of the acquisition on his current compensation, the more likely he is to try to block the deal, and vice versa.

To test their hypothesis, Walkling and Long examine a sample of 98 friendly and hostile takeovers. Very soon they discover that there are no significant differences in financial characteristics between the targets of friendly and hostile takeovers. Even the premiums in friendly and hostile takeovers do not differ significantly from each other. The decision to oppose a tender offer depends primarily on the percentage of common voting stock held by the target corporation's current management and the amount of expected loss of cash compensation following the takeover. The more shares and stock options a manager has, the less incentive he has to oppose the deal and the correspondingly more friendly it turns out to be, and vice versa.

These results can be interpreted as follows. It is possible that a manager who owns a large block of shares begins to have a more friendly attitude towards the aggressor due to the fact that he expects to compensate for the loss of wages with a bonus that he will receive when selling his stake in a tender. Interestingly, the average salaries of top managers of target corporations were lower in friendly takeovers than in hostile ones. This observation also confirms Walkling and Long's hypothesis: the more you have to lose, the more hostile you are to what might lead to that loss.

Table 2.2

The structure of the compensation package of managers of target corporations in friendly and hostile takeovers

Source. Walkling, R., Long, M.(1984) Agency Theory, Managerial Welfare and Takeover Bid Resistance. RAND Journal of Economics, Vol. 15, pp. 54–68.

And naturally, your hostility intensifies when you see that you cannot compensate for this loss by selling a large block of shares at a premium. Data discovered by Walkling and Long 71
The attentive reader has probably already noticed that the results of the study by Walkling and Long largely coincide with the results of the study by Kotter and Zenner, which we discussed in Chapter. 1. ( Cotter, J., Zenner, M.(1994) How Managerial Wealth Affects the Tender Offer Process. Journal of Financial Economics, Vol. 35, pp. 63–97.

Shown in table. 2.2. This table is bad news for proponents of the shareholder wealth hypothesis!

Protection against hostile takeover and 1Р0

Initial public offerings of companies' securities can provide an interesting perspective on the motives behind the use of hostile takeover defense methods. Recently, more and more often in practice one can encounter a situation where a company equips itself with methods of protection against a hostile takeover not after how it becomes a public company 72
That is, a company that has ordinary voting shares that are freely traded on the stock market.

And still at the stage of becoming one.

Why does she need this? It is possible that by answering this question we will improve our understanding of the true motivations for defending against a hostile takeover.

The most traditional point of view on the degree of protection of companies that have recently undergone an IPO and become public can be formulated as follows: they are weakly or not at all protected from a hostile takeover. There are a lot of arguments in favor of this point of view. Indeed, the shares of these companies appeared on the open market recently, their ownership structure has not yet had time to “settle down”, their management is not yet accustomed to or is not familiar with all the dangers that lie in wait for open joint-stock companies, etc. Hence the potential vulnerability of the company to hostile takeover.

But we can give a completely different interpretation to the fact that companies that have recently completed the IPO procedure are not yet armed with protection methods. According to the entrenchment hypothesis, managers simply haven’t had time to “dig in” on them yet. The field of agency conflicts has not yet been seeded with small, dispersed shareholders. Instead, there is a narrow group of private owners who are aware of the negative impact of protection methods on the value of companies and therefore are in no hurry to apply them, because they want to sell shares in an IPO at the highest possible price. And only after they have sold their shares does management have a chance to equip the company with methods to protect itself from a hostile takeover and isolate itself from the disciplining influence of the market for corporate control.

Does this mean that the increasing use of defensive techniques at the IPO stage is a signal that managers today are able to dig in faster and more effectively than in the past?

A 2002 empirical study by Field and Karpoff provides some interesting results. 73
Field, L., Karpoff J.(2002) Takeover Defenses of IPO Firms. Journal of Finance, Vol. 57, pp. 1857–1889.

The sample of these researchers included 1019 industrial companies that went through the IPO procedure on the American market from 1988 to 1992. Of these companies, 53% armed themselves with at least one method of protection at the IPO stage. Moreover, the average company in the sample was armed with 1.71 defense methods at the time of its IPO, but acquired only an additional 0.19 defense methods over the next five years after the IPO.

What factors did the decision to use protection methods at the IPO stage depend on? Field and Karpoff believe that the magnitude of the private benefits of control that managers of IPO companies had. Thus, in particular, Field and Karpoff found that the likelihood of using protection methods increases as the block of ordinary voting shares under the control of current management begins to decrease, the size of its current compensation increases, and the quality of monitoring of its actions by shareholders deteriorates, directly not involved in the management of the company.

Such data can be interpreted to support the entrenchment hypothesis. Managers equip their companies with defenses at the IPO stage only when the private benefits of entrenchment (the size of retained wages and lack of monitoring) exceed its costs (the drop in the value of the company's shares after it is equipped with protection against a hostile takeover). 74
Regarding this hypothesis, see also: Brennan, M., Franks,/. (1997) Under-pricing, Ownership and Control in Initial Public Offerings of Equity Securities in the U.K. Journal of Financial Economics, Vol. 45, pp. 391–414.

However, even here, defense methods still have defenders. Some of them argue that protecting a company at the IPO stage is nothing more than one of the veiled forms of management compensation. Others argue that an IPO is just the first step in the process of ultimately selling a company, and if so, arming it with hostile takeover defenses can help owners get the highest possible price. 75
Zingales, L.(1995) Insider Ownership and the Decision to Go Public. Review of Economic Studies, Vol. 62, pp. 425–448.

Why do they vote?

If there are suspicions that hostile takeover protection is not such a good thing for the welfare of company shareholders, then why do those same shareholders vote to create protection methods? Indeed, it cannot be that no shareholder is unaware of the dismal results of some of the empirical studies with which we have already become acquainted. Or is it still possible?

As discussed above, there are theoretically several explanations for shareholder voting to create protective practices. Let's bring them.

Some shareholders may indeed be unaware that there are several alternative views on hostile takeover defense.

Some shareholders may just be a bunch of irrational people.

The creation of protection against a hostile takeover can be lobbied by large shareholders of the corporation in the hope of receiving some private benefits that will more than compensate for all the negative consequences of creating protection.

Dispersed shareholders cannot 76
Or maybe they don’t want to, because they are victims free skate problems, i.e., for each shareholder, the costs of blocking the creation of protection from a hostile takeover exceed the benefits of blocking.

Create some significant opposition to managers and the board of directors who are actively “pushing” protection methods.

An interesting explanation for the fact that shareholders vote for something that, on average, leads to a fall in the prices of their shares, was proposed in 1992 by Austin-Smith and O'Bryan 77
Austen-Smith, D., O'Brien, P.(1992) Takeover Defenses and Shareholder Voting. Economica, Vol. 59, pp. 199–219; see also: Berkovitch, E., Khanna, N.(1990) How Target Shareholders Benefit from Value-Reducing Defensive Strategies in Takeovers. Journal of Finance, Vol. 45, pp. 137–156.

On the one hand, the creation of protection against a hostile takeover leads to the fact that some potential buyer corporations will now never put forward tender offers for a controlling stake in the target corporation. Taking over such a company is now becoming too expensive for them! The likelihood of the target corporation being taken over is reduced. As a result, the likelihood of its shareholders receiving a bonus is reduced. This is bad. In addition, protection helps management “dig in.” This is also bad.

But, on the other hand, the remaining portion of potential corporate buyers 78
If there are no such companies now, it is possible that they will appear on the market in the future.

Now it will be forced to absorb the target corporation at a higher price. Sooner or later, shareholders of the target corporation will receive a higher premium for their shares. At least that's what we can hope for now. And this is good.

From the point of view of Austin-Smith and O'Bryan, it is for the sake of gaining hope of receiving a higher premium that shareholders vote for the creation of methods of protection against a hostile takeover. For the sake of hope, they are ready to do anything, including reducing the likelihood of a takeover of the company and increasing the “depth trenches" of managers.

The Impact of Hostile Takeover Defense on Morals

It is interesting to know whether the spread of protection methods among companies serves to “soften the morals” of the national market for corporate control? In other words, are the number of hostile takeovers taking place in a domestic market decreasing as more companies become armed with hostile takeover defenses?

Nelson's 1999 study concluded that, on average, the number of friendly and hostile takeovers is independent of corporate security! 79
Nelson, A.(1999) Protection or Politics? An Empirical Examination of Takeover Activity. Working Paper. Baylor University.

The activity of the national market for corporate control closely correlates only with the rate of economic growth. However, when Nelson left only hostile takeovers in the sample, it turned out that legislation that complicates the procedure for conducting a hostile takeover, coupled with the so-called poison pills (we will talk about this method of protection later) lead to a decrease in the number of hostile takeovers.

No impact of other defense methods on hostile takeover market activity was found. That is why, as mentioned above, protection methods cannot completely protect your company from the threat of a hostile takeover! It is not without reason that many empirical studies have found results showing that no more than 25% of the total number of companies that have become targets of hostile takeovers manage to successfully defend themselves 80
For example, Fleischer, Sussman, and Lesser report that only 23% of the companies in their sample were able to successfully defend themselves against a hostile takeover ( Fleischer, A., Sussman, A., Lesser, N.(1990) Takeover Defense. Gaithersburg: Aspen Law & Business). And according to the data Thomson Financial Securities Data, only 16% of all target corporations in the 1990s. managed to successfully defend against a hostile takeover.

Classification of protection methods

Classifying protection methods is a thankless task, since there is no clearly defined sequence of their application, and each protection method most often has many different modifications.

Nevertheless, all methods of protection against a hostile takeover can be divided into two large groups:

preventive methods of protection created by a corporation even before the immediate threat of a hostile takeover appears (they are also called protection before offer );

active methods of protection, which the corporation resorts to after the aggressor has put forward a tender offer for its controlling stake of ordinary voting shares (they are also called protection after offer ).

Preventive and active methods of protection against a hostile takeover, in turn, can be classified into:

operational methods of protection– methods that require a change in the composition and/or structure of the company’s assets/liabilities for their application;

non-operative methods of protection– methods that do not require changes in the composition and/or structure of the company’s assets/liabilities for their application.

You can often find a division of preventive methods of protection against a hostile takeover into internal And external protection methods.

Under internal preventive methods of protection hostile takeover refers to all actions of the target corporation aimed at changing the internal structure and nature of the company's operations.

Under external preventive methods of protection hostile takeover means all actions of the target corporation aimed at changing the perception of the corporation by potential aggressors and receiving early warning signals about the presence of potential aggressors in the market.

A brief description of the most common protection methods in Western practice is given in Table. 2.3.

Table 2.3

General characteristics of methods of protection against hostile takeover

These are probably all the most common methods of protection in the world today. The simultaneous use of all protection methods discussed above is possible only in the USA. In all other countries of the world, the choice is not nearly as rich, and in some it is possible to use only one or two methods of protection.

Which of the protection methods discussed above are preventive and which are active protection methods? It is difficult to give a clear answer to this seemingly simple question. The vast majority of protection methods given in table. 2.3 can be applied both before and after an immediate threat of takeover of the company arises. The only thing we can say with certainty is that companies prefer to use some methods of protection before, and others only after an immediate threat of takeover arises.

So, before When there is an imminent threat of a hostile takeover, companies prefer to use a divided board of directors, super majority condition, fair price condition, limiting changes in the size of the board of directors, prohibition of cumulative voting, poison pills, authorized preferred shares, top class recapitalization, limitation of shareholder rights, reincorporation, stakeholder clause, position against green blackmail.

Targeted share buybacks, non-intervention agreements, golden parachutes, and restructuring of a company's liabilities and assets are usually used after a tender offer has been put forward for their controlling stake.

However, the reader should remember that a protection method that was preventive for one company will be active for another company. The company can, as a preventive measure, buy out a stake from a potential aggressor or wait until he puts forward a tender offer,

and only after that offer him to sell his stake. A company can provide its managers with golden parachutes with equal ease both before and after a tender offer is made, etc.

In addition to the methods of protection against hostile takeovers that we have already discussed, which can be created at the level of an individual company by decision of the general meeting of shareholders and/or the board of directors, there are also methods of protection that are created and operate without any connection with the wishes of shareholders and company managers. We are talking about protection methods “built-in” into national legislation regulating the markets for corporate control in different countries. As a rule, most of these “anti-takeover laws” are designed to protect the interests of minority shareholders in hostile takeovers.

In table 2.4 the reader will find a description of the most common methods of protection of this type in the world today.

Table 2.4

Methods of protection “built-in” into legislation regulating national markets for corporate control

After we have given a quick overview of existing methods of protection against hostile takeovers, it is time to move on to a more detailed analysis of the most interesting methods of protection. This is what we will do in the following chapters.

Targeted buyout. In a target buyout, the target corporation makes a direct tender offer to an outside group or individual investor that owns a large block of its common stock and poses a potential threat to the corporation as its buyer. The redemption of this stake is accompanied by the payment by the corporation - the goal of a significant premium over the current market value of its common shares. Using this method of protection, the target corporation, having bought out a large stake, gets rid of the buyer. Naturally, the only reason why a purchasing corporation can agree to sell its stake is the possibility of receiving excess income in the form of a premium. The higher the amount of the announced premium, the higher the likelihood that the tender offer for a targeted buyout will be successful.

Stop agreement (non-intervention agreement). It is a contract concluded between the management of the target corporation and a major shareholder, which for a certain number of years limits the target corporation from owning a controlling interest in the common voting shares. Quite often, the target corporation accompanies the signing of a stop agreement with a targeted buyout of part of the stake owned by the purchasing corporation. In this case, the defense is called “green blackmail.” This is one of the most effective methods of protection and at the same time the method that has the most detrimental consequences for the welfare of the corporation's shareholders - the goal is that the current value of shares can decrease by 10-15%.

Litigation. This is one of the most popular protection methods. More than a third of all tender offers made between 1962 and 1980 were accompanied by various lawsuits by the target corporation, in which it accused the acquiring corporation of violating all existing laws, including even environmental laws. Most lawsuits are filed in connection with antitrust and stock market laws. As a result of initiating litigation, the target corporation may delay the acquiring corporation (litigation, hearings, retrials, etc.) and at the same time significantly increase the cost of the merger (the acquiring corporation would rather agree to increase the tender offer than incur huge legal and transaction costs) .

Asset restructuring. This is the most stringent method of protection in relation to the purchasing corporation. It consists of dividing assets into parts and partially transferring assets under the control of friendly companies.

Restructuring of liabilities. This method of protection is carried out in two stages:

• 1) carrying out an additional issue and ordinary voting shares, fully placed among “friendly” external investors (or shareholders), i.e. persons who will support the existing management of the corporation - targets in the event of a hard takeover attempt;
• 2) carrying out a large issue of debt obligations (short-term or long-term bonds). At the same time, the funds received from its implementation are used to repurchase their ordinary shares traded on the open market or held by large, but “unreliable” shareholders.

Reincorporation. The method of defense by reincorporation is to re-register the constituent documents of the target corporation in another state (region) that has more severe antitrust laws than the one in which it is currently registered. Theoretically, such protection can significantly complicate the takeover of a reincorporated company, but in practice, re-registration of documents is an extremely lengthy process and the target corporation will most likely simply be absorbed before it completes such protection.

Buyout with debt financing. Among the transactions in the market for corporate control, a whole family of transactions stands out that turn a public company into a closed one. In practice, the majority of these transactions are debt-financed buyouts, debt-financed management buyouts, and debt recapitalizations. Debt buyouts and debt recapitalizations can be effectively used by company management as methods of defense against a hostile takeover. With the help of these transactions, the corporation's management has the opportunity to significantly reduce the number of shares in circulation available for redemption by the aggressor, and at the same time increase its own stake. Buyouts using debt financing are most often friendly and negotiated, although there are exceptions.

If a debt buyout is used as protection against a hostile takeover or the potential threat of one, then most likely such a buyout will not be a divisional buyout - the corporation will be bought out as a whole. In this case, the initiator of the buyout will no longer be the investment bank, but the management of the purchased corporation. A debt finance buyout is a financial transaction that takes place in four stages:

• 1) the creation of a new company, on behalf of which the repurchase of all ordinary voting shares of an existing company (or one of its divisions) traded on the open stock market is carried out;
• 2) attracting resources to finance the buyout (obtaining loans from large financial institutions, etc.);
• 3) repurchase of all company securities;
• 4) distribution of shares of the repurchased company between the repurchase initiator and creditors.

Redemption of securities. The purchase of securities of the target company can be carried out through a tender offer and merger. The first and most obvious way to repurchase shares is to make a tender offer directly to the shareholders of the target company.

A tender offer for a buyout is made and conducted on behalf of the captive company, and each shareholder of the target company is free to independently decide whether to accept or not accept the terms of the offer made. A tender offer does not have to be all or nothing. The acquiring company can make a tender offer to buy out a controlling stake, and after its acquisition, intensify the negotiation process regarding the fate of the remaining shares. In the second option, the acquiring company seeks from the very beginning to put the share buyback on a negotiating basis that is friendly to the management of the company being bought out. Naturally, this method is most often used in debt-financed management buyouts. The merger agreement (which specifies all the conditions for the repurchase of shares, transfer of assets, etc.), agreed upon by the management of the two companies, goes through a standard two-step procedure for approval by the meeting of shareholders and the board of directors of the target company.

Buyout financing. Most of the financial resources necessary to pay for the repurchase of shares of the target company are attracted by the acquiring company through the issuance of junk bonds. The remainder (rarely exceeding 10% of the required funds) is provided by banks in the form of revolving loans or loans with a repayment period of 10 to 12 years. Loans are most often secured by the assets of the company being acquired. In addition, financial institutions sponsoring the transaction quite often get involved themselves and receive part of the shares of the company being bought out.

Debt recapitalization. An important extension of debt financing buyouts is debt recapitalization, which is sometimes also called cash buyouts. A debt recapitalization, like a debt buyout, changes a company's ownership structure and significantly increases its leverage ratio. Unfortunately, it seems absolutely impossible to provide a clear definition of debt recapitalization. Instead, all possible options for its implementation will be considered, from which its essence will automatically flow. Debt recapitalization can be accomplished through a share repurchase, merger, share exchange, or reclassification.

Recapitalization by share repurchase. In this option, a corporation (which exists as a public limited company) announces a large dividend payment on its common voting shares. The company receives funds for paying dividends from issues and debt securities (most often junk bonds). Debt recapitalization by repurchase of shares is increasingly popular among corporations whose management owns large blocks of common voting shares. The reasons for such an operation become obvious when we find out what the company's managers will use the dividends received on their shares. And these funds are used to expand their blocks of ordinary voting shares in the company. Managers can issue a tender offer to buy back a certain number of shares on the public stock market and make such an offer directly to their shareholders. There is another option for recapitalization by repurchasing shares. Dividends are paid in cash only to outsider shareholders (in this case, an outsider shareholder is a shareholder who has no connection with the company's management), and insider shareholders receive equivalent dividends in the form of common shares.

Recapitalization by merger. A merger recapitalization is a close relative of a debt finance buyout and consists of the following. At the instigation of a group of shareholders (usually led by the management of the target company), a new invading company is created, which does not have any assets on its balance sheet. The newly created company merges (not in the sense of consolidation, but in the sense of acquisition) with an existing target company. As a result, the “surviving” company turns out to be the invading company. The whole point is contained in the merger agreement, which stipulates that every share of the target company will be exchanged for a share of the acquiring company plus cash or a combination of cash and bonds. The agreement further establishes that each share of the acquiring company will, after some time, be exchanged for a certain number of shares of the new corporation. Immediately before the merger, the management of the target company exchanges its shares for shares of the acquiring company.

Recapitalization by share exchange. Debt recapitalization can be carried out not only through a one-time payment of large dividends on the company's common shares, but also through an exchange offer. In this case, the corporation, using various combinations of cash, junk bonds and preferred shares, can exchange them for common voting shares held by shareholders. The fundamental difference between a debt buyout and a debt recapitalization is who will control the company's shares after the transaction. In a debt buyout, the shareholders of the acquiring corporation will control absolutely all of the shares of the target corporation they acquired, and the former shareholders of the target corporation (with the exception of its management) will have nothing to do with it. If the target corporation, for one reason or another, decides to pursue a debt recapitalization, then all of its shareholders will remain owners of the property and will not be removed, as would happen in a debt-financed buyout. Additionally, in a debt buyout, the target corporation becomes a closely held company, while in a debt recapitalization, it remains a public company. Most often, in debt financed buyouts, control of the corporation being bought out passes to the investment bank, while in debt recapitalizations, it remains with the current management of the company. The fundamental difference between the Russian practice of conducting hostile takeovers and the existing practice of developed countries is that hostile takeovers carried out by Russian corporations can only formally be called a market mechanism for redistributing control over an open joint-stock company. A hostile takeover by a Russian company may most often be motivated by the desire of its current management to expropriate the free cash flows generated by the company, or the desire to expropriate the free cash flows belonging to the target corporation. There is no doubt that such takeovers, which destroy the value of investment projects, should be limited as much as possible.

However, the specificity of Russian mergers and acquisitions is that they practically do not affect the organized stock market and the market price of shares on the secondary market is not significant. Several of the largest Russian blue chips, listed on stock exchanges and the RTS with a relatively liquid market, are least likely to become the target of a takeover, even if their market value is significantly undervalued compared to their potential. Unlike traditional forms of mergers and acquisitions with a fairly high proportion of voluntary, “friendly” mergers, in our country they are almost always of a rigid, forced nature. One of the main problems of Russian mergers and acquisitions is the almost universal identity of enterprise managers and its owners.

If in Europe the ambitions of managers quite often become a definite problem when two public companies merge with a larger competitor is often perceived as losing to a competitor. Such problems can be avoided only with a clear understanding of the roles and tasks of the partners in the merger. Examples of such understanding are extremely rare; this is, perhaps, the formation of the Progress-Garant group, created by merging the large and young insurance company YUKOS-Garant (formerly the YUKOS insurance captive) and an order of magnitude smaller, but the oldest Russian insurer -- “Progress.”

In general, the process of mergers and acquisitions taking place in Russia is, in my opinion, positive for increasing the efficiency and competitiveness of companies. The formation of large holdings managed by a solvent owner (usually an exporter) provides today's “hopeless” enterprises with a unique opportunity to attract investment and modernize production. However, the continuing unfavorable investment climate and the lack of real control over the actions of insiders may lead to a repetition of the situation with mass privatization, when the owner, who bought the enterprise at a price much lower than its real value, did not benefit from creating added value, but simply stealing it. This is a real risk that must be taken into account when developing measures to protect the interests of shareholders (as well as creditors, employees of the enterprise, the state) during mergers and acquisitions.

Many empirical studies conducted in recent years support this assumption. For example, competition has been found to increase the share repurchase premium for target corporation shareholders from 24% to 41%.

Other studies have found that competition in a hard takeover increases the size of the tender offer by an average of 23%.

The constant threat of a tough takeover can cause corporate managers to focus their attention not on the stability and prosperity of their company in the long term, but on its current profitability indicators. Management begins to reduce the volume of investments in R&D and reject investment projects whose payback period exceeds 2-3 years. Indeed, if a corporation can be absorbed not today or tomorrow (and after a hard takeover the management of the corporation will be replaced), then it would be naive to expect that the management of the corporation will be interested in the long term. Moreover, the size of his salary depends primarily on the current performance of the corporation. Such management behavior will lead to a decrease in the value of the company and, as a result, to a decrease in the welfare of its shareholders. Anti-takeover protection helps solve this problem. For example, a manager may be guaranteed to receive large bonus payments if he is removed from his position after a tough takeover.

However, in the light of recent research on the market for corporate control, this hypothesis looks rather pale. The assertion that managers, acting as intermediaries for shareholders, are able to increase the size of the tender offer does not inspire confidence. Regarding the delay of the takeover process, the shareholders, with their disorganization, will be able to do this better than any manager. There is a wealth of research on the impact of the threat of a hard takeover on a corporation's long-term investment. For example, investments in R&D can be considered as long-term investment projects. According to the hypothesis just discussed, after the installation of protection we should see an increase in R&D investments. However, in practice, a completely opposite situation is observed - as soon as management installs protection on its corporation, the volume of investments in R&D not only does not increase, but decreases. Perhaps management is pursuing slightly different interests when deciding to protect their corporation?

Managerial welfare hypothesis)

In contrast, the managerial wealth hypothesis argues that protection from a hard takeover reduces the wealth of a company's shareholders.

Management, by establishing protection against a hard takeover, pursues its own interests, namely, it tries to artificially weaken the disciplinary function of the market for corporate control. By establishing protection against a hard takeover, the manager primarily protects himself, and not his shareholders. Now, no matter how poorly he runs the corporation, he is not in danger of losing his job (or the likelihood of losing it is significantly reduced) due to a hard takeover. Let us remember that the well-being of a company's management is wages. The size of these salaries is closely linked to the current financial condition of the corporation (through profit-sharing schemes, bonus payments and management options held by managers). Clearly, the risk of lost wages is closely related to the risk of a corporate takeover. As soon as a company's performance declines, the likelihood of a hard takeover immediately increases and, as a result, the likelihood of lost wages increases. It is highly likely that risk-averse managers will seek to reduce this risk in every possible way, one of which may be to provide the corporation with anti-takeover protection. Protection reduces the likelihood of a corporate takeover, and therefore reduces the risk of lost wages. Thus, defensive actions that do not benefit shareholders may benefit management, which is similarly trying to reduce its risks.

Providing takeover protection to a corporation is often viewed as an agency problem within the company. To do this, it is enough to assume that the parties to the agency relationship (the manager is an agent of the shareholders, who theoretically should maximize the welfare of the shareholders) will maximize their own welfare.

Thus, many management decisions will harm the welfare of shareholders. This “harm” is called agency cost. But what is a cost for shareholders is net profit for management.

Most protection methods can be classified into two groups:

Protection methods created by the corporation before the immediate threat of a hard takeover appears;

Protection methods created after the tender offer to repurchase shares has been made. – emergency measures

2.1 Pre-offer defenses

Pre-offer defenses - preventive methods of protection (preventive) (Appendix 1)

Potential effectiveness is defined as low if its application causes only some inconvenience to the aggressor company or forces it to restructure the tender proposal without significantly increasing its size.

Potential effectiveness is defined as high if its use makes it possible to completely block any potential takeover attempts, vetoing any changes in control of the company.

The most effective and completely blocking any types of takeovers are all modifications of “poison pills” and the highest class Recapitalization (discussed in more detail below).

All other methods, at best, can force the aggressor company to restructure the tender offer, increase its costs, or delay the process of a hostile takeover.

Division of the board of directors

The method involves introducing a clause into the company's charter that stipulates the procedure for dividing the board of directors into three equal parts. Each part can be elected by the meeting of shareholders for only one year and so on for three years. Thus (theoretically) the acquiring company is deprived of the opportunity to gain immediate control upon acquisition of 51% of the shares. This will require at least waiting for two annual meetings in order to appoint representatives to the board of directors. 5

Supermajority condition

This method also involves amending the company's articles of association, but now to set the high percentage of voting shares required to approve the merger. This restriction simultaneously applies to making decisions on the liquidation of a company, its restructuring, the sale of large assets, etc. In most cases, the barrier is set between 66.66 and 80% of shares. Such a restriction significantly complicates a hostile takeover, since the size of the controlling stake increases, which leads to increased costs for the aggressor company. 6

Fair price method

The fair price condition stipulates the condition for the repurchase of more than 20 (30)% of the voting shares. This condition complements (tightens) the supermajority condition and, as a rule, is not applied separately from it. The main goal is to prevent the so-called. bilateral tender offers, in which the price offered per share in a large block is higher than in a smaller block. This protection forces the acquiring company to restructure the tender offer, while the victim company gains some time. At the same time, the use of this protection does not entail an increase in the tender offer. 7

"Poison Pill"

In general terms, poison pills are rights issued by a target company to its shareholders, giving them the right to purchase additional shares of the company's common stock upon the occurrence of a specified event. The catalyst for the exercise of the right of repurchase can be any attempt to change control of the company that is not agreed upon by the board of directors of the target company.

Appendix 2 briefly summarizes all the main types of poison pill defense:

There are at least six main types of poison pills, some of which are listed below:

Preferred stock plans

An issue by a target company of convertible preferred stock that is distributed to its shareholders in the form of dividend payments on common stock. The holder of a convertible share has the same voting status as a holder of a common share. 8

Flip-over plan

The target company declares dividends on its common stock in the form of rights to purchase a specific class of its securities. The acquisition price is set at a level significantly higher than the market value of the securities for which the right to purchase has been issued. The rights cannot be exercised until the aggressor company has acquired a large block of shares or the company has received a tender offer. 9

Flip-in plans

Flip-in plan is an additional “attachment” to the flip-over plan described above. If the aggressor company transfers the assets of the acquired company on terms that discriminate against its shareholders or reduce their net wealth, the shareholders of the target company have the right to buy back the shares of the aggressor company at a significant discount from their market value. Thus, the use of flip-in protection makes a takeover a more capital-intensive project for the aggressor company and, at the same time, protects the rights of shareholders of the target company. 10

Flip-out plans

This type of "poison pill" is a purely theoretical concept, which is as follows. Once a target company is subject to a hostile takeover attempt, its shareholders receive rights to buy out the shares of the aggressor company. And, in the end, only theoretically, the aggressor company, having absorbed the victim company, discovers that it has acquired its own assets. The flip-out plan is similar to the “Pacman defense” often mentioned in the literature, which consists of a counter-offensive of the victim company against the shares of the aggressor company. eleven Abstract >> Economics

In 1887, based on the invention of new methods pipe rolling and steel manufacturing. After the war... a company of preventive measures aimed at protection from hostile takeovers. 3. Own vision of the problem The merger process...

Federal Agency for Education

State educational institution of higher professional education

Far Eastern State University

Branch Ussuriysk

Money. Monetary system.

Completed by Student

Pirskaya Evgenia Vladislavovna

Scientific director

Senior Lecturer

Departments Economics

Rodya Larisa Vladimirovna

The subject of this work is to consider the issue of mergers and acquisitions of companies, as well as protection against hostile takeovers.

The relevance of this work lies in the fact that in the current economic situation that has developed today in Russia, the process of mergers and acquisitions of companies has become the object of close attention, therefore it is important for domestic companies to resolve the issue of effective behavior in the market in order to prevent acquisitions by other companies.

In this regard, enterprises have a need to search for the most effective models of behavior in relation to other enterprises, effective technologies to overcome the state of crisis in organizations, and master modern methods of property restructuring.

Giant companies have always sought to conquer a larger share of the market through voluntary mergers or forced takeovers of smaller companies.

In this regard, the purpose of this work is a detailed consideration of the issue of mergers and acquisitions.

The objectives of the work are based on the goal and represent a consideration of the theoretical aspects of the topic raised. A separate task is to assess the effectiveness of mergers, as well as consider the positive and negative results of the takeover of companies.

A separate task is to identify effective methods of protection, both domestic and foreign.

Based on the foregoing, during the development of the work, issues related to determining the essence of mergers and acquisitions, motives leading to this form of property reorganization, types of acquisitions and mergers, as well as assessing the effectiveness of mergers were considered in the theoretical part.

In the second part, methods of protection against unfriendly mergers will be examined in detail.

Methods will be presented not only for strict protection directly during a takeover, but also preventive measures in order to prevent undesirable consequences, such as “takeover” by another company.

1 Theoretical aspects of mergers and acquisitions of companies in market conditions .

Merger is one of the most common development methods that even very successful companies are currently resorting to. This process in market conditions becomes a common, almost everyday phenomenon.

There are certain differences in the interpretation of the concept of “merger of companies” in foreign theory and practice and in Russian legislation.

In accordance with approaches generally accepted abroad, a merger means any association of business entities, as a result of which a single economic unit is formed from two or more pre-existing structures.

In accordance with Russian legislation, a merger is recognized as the emergence of a new company by transferring to it all the rights and obligations of two or more companies with the termination of the latter.

Consequently, a necessary condition for registering a merger of companies is the emergence of a new legal entity, while the new company is formed on the basis of two or more previous companies that have completely lost their independent existence. The new company takes control and management of all assets and liabilities to clients of the companies - its constituent parts, after which the latter are dissolved.

Abroad, the concepts of “merger” and “acquisition” do not have such a clear distinction as in our legislation.

Merger – absorption (by purchasing securities or fixed capital), merger (of companies);

Acquisition – acquisition (for example, shares), takeover (of a company);

Merger and acquisitions – mergers and acquisitions of companies.

The takeover of a company can be defined as one company taking control of another company, managing it with the acquisition of absolute or partial ownership of it. The takeover of a company is often carried out by purchasing all shares of the enterprise on the stock exchange, meaning the acquisition of this enterprise.

Acquisition strategy

Strategy is an interconnected set of long-term measures aimed at realizing the mission of an enterprise or, if you prefer, at strengthening its strength and viability.

There are generally five common types of acquisition strategies.

1. Resale of the enterprise at a higher price;

2. Increase in market share;

3. Acquiring control over suppliers or sellers;

4. Penetration into other industries;

5. Purchasing company income.

Based on the desire of companies to maximize profits, most of the motives that encourage companies to merge or acquire can be divided into the following groups:

I Motives for reducing the outflow of resources (this refers primarily to monetary resources, which are the costs of the enterprise).

II Motives for increasing (stabilizing) the influx of resources.

III Motives neutral in relation to the movement of resources.

The first group of motives aimed at reducing costs includes the following:

I .1. Economies of scale

I .2. The motive for increasing the efficiency of working with suppliers

I .3. Motive for eliminating duplicate functions

I .4. Motive for cooperation in R&D

I .5. The motive for reducing taxes, customs duties and other fees

I .6.

I .7. Motive for eliminating management inefficiency

The second group of motives aimed at increasing (stabilizing) revenues includes the following:

II .1. The motive of complementary resources

II .2. Motive for acquiring large contracts

II .3. Capital market advantage motive

II .4. Monopoly motive

II .5. Diversification of production. Ability to use excess resources

II .6. Motive for access to information

The third group of motives neutral in relation to the movement of resources includes:

III .1. The reason for the difference in the company's market price and its replacement cost

III .2. Reason for the difference between liquidation and current market value

III .3. Personal motives of managers. The desire to increase the political weight of the company's management

III .4. Anti-takeover motive

III.5. Motif “too big to fail”

As the experience of most countries shows, the size of a corporation itself is a guarantee of its reliability (the so-called “too big to fail” effect - too big to go bankrupt). Since the state, due to a number of socio-economic reasons, is forced to “patronize” the largest companies, they receive additional advantages in competition with smaller ones.

In modern corporate management, many different types of mergers and acquisitions of companies can be distinguished. It is believed that the most important classification features of these processes include:

· nature of company integration;

· nationality of the merged companies;

· companies' attitude towards mergers;

· a way to combine potential;

· terms of the merger;

· fusion mechanism.

Depending on the nature of company integration, it is advisable to distinguish the following types:

» horizontal mergers - combinations of two or more companies occupying the same position in the market.

» vertical mergers - the association of companies from different industries connected by the technological process of production of the finished product, i.e. expansion by the purchasing company of its activities either to previous production stages, up to sources of raw materials, or to subsequent ones - to the final consumer. For example, the merger of mining, metallurgical and engineering companies;

» generic mergers - an association of companies producing related products. For example, a company that produces cameras merges with a company that produces photographic film or chemicals for photography;

» conglomerate mergers - the combination of companies in various industries without the presence of a production community, i.e. This type of merger is a merger of a firm in one industry with a firm in another industry that is neither a supplier, nor a consumer, nor a competitor. Within the conglomerate, the merging companies have neither technological nor target unity with the main field of activity of the integrator company. The core production of this type of association takes on a vague outline or disappears altogether.

In turn, three types of conglomerate mergers can be distinguished:

» Product line extension mergers, i.e. a combination of non-competing products whose sales channels and production processes are similar.

» Market extension mergers, i.e. acquiring additional distribution channels, such as supermarkets, in geographic areas not previously served.

» Pure conglomerate mergers that do not imply any commonality.

Depending on the nationality of the merged companies, two types of mergers of companies can be distinguished:

» national mergers – association of companies located within the same state;

» transnational mergers – mergers of companies located in different countries (transnational merger), or the takeover by an enterprise of a company incorporated in a foreign country (cross-border acquisition).

Taking into account the globalization of economic activity, in modern conditions mergers and acquisitions not only of companies from different countries, but also of transnational corporations are becoming a characteristic feature.

Depending on the attitude of the company’s management personnel to the merger or acquisition transaction, the following can be distinguished:

» friendly mergers – mergers in which the management and shareholders of the acquiring and acquired (target, selected for purchase) companies support the transaction;

» hostile mergers - mergers and acquisitions in which the management of the target company (target company) does not agree with the upcoming transaction and carries out a number of anti-takeover measures. In this case, the acquiring company has to take action on the securities market against the target company with the aim of absorbing it.

Depending on the method of combining potential, the following types of merger can be distinguished:

» corporate alliances are an association of two or more companies, concentrated on a specific separate line of business, ensuring a synergistic effect only in this direction, while in other areas of activity the companies act independently. Companies for these purposes can create joint structures, for example, joint ventures;

» corporations - this type of merger occurs when all the assets of the companies involved in the transaction are combined.

"In turn, depending on what potential is combined during the merger, we can distinguish:

» industrial mergers are mergers in which the production capacities of two or more companies are combined in order to obtain a synergistic effect by increasing the scale of activity;

“purely financial mergers are mergers in which the merged companies do not act as a single whole, and significant production savings are not expected, but there is a centralization of financial policy that helps strengthen positions in the securities market in the financing of innovative projects.

Mergers can be carried out on parity terms (“fifty-fifty”). However, accumulated experience suggests that the “equity model” is the most difficult option for integration. Any merger may result in a takeover.

In foreign practice, the following types of company mergers can also be distinguished:

» merger of companies functionally related through production or sales of products (product extension merger);

» a merger resulting in the creation of a new legal entity (statutory merger);

» full acquisition or partial acquisition;

» outright merger;

» a merger of companies accompanied by an exchange of shares between participants (stock-swap merger);

» takeover of a company with the addition of assets at full cost (purchase acquisition), etc.

The type of merger depends on the market situation, as well as on the companies' strategy and resources at their disposal.

Mergers will be effective only if, as a result of their implementation, the welfare of shareholders increases and certain competitive advantages are achieved. How can one assess what influences the effectiveness of mergers, in which cases the shareholders of the merging companies will actually become “richer”, and in which cases their interests will be infringed? What should you look for when deciding to conduct a merger or acquisition in order to benefit from the transaction rather than incur losses?

To begin with, it should be noted that the initiator of the transaction, as a rule (and what is quite logical and obvious), is a larger company. Let's say this is a company A, which announced its intention to merge with the company B .

During a merger or acquisition transaction, the shares of the acquired company are purchased from its shareholders and cease to be traded on the market. Instead, the shares of the already merged company are traded, which are the same shares of the acquiring company (company A) after its additional issue. The difference between mergers and acquisitions is that in mergers, the shareholders of the acquired company (the company B) become owners of shares of the already merged company, along with the shareholders of company A. In this case, the repurchase of shares most often takes the form of an exchange of shares in a certain proportion. In case of acquisitions, the shareholders of company B do not have participation in the capital of the merged company. Their shares are simply bought back by Company A on a contractual basis.

It is obvious that in order to interest the shareholders of the acquired company B in completing the transaction, company A needs to provide conditions under which the shareholders of company B will have a certain income. For this purpose, company A buys their shares from shareholders B at a price higher than the current market value. At the same time, the amount of the premium is often quite large.

Benefit from the transaction for the company A, at the same time will be beneficial for the company B, - there is a cumulative benefit for both parties from the merger and will be equal to the excess of the actual present value (PV) of the merged company AB above the sum of the current values ​​of companies A And B taken separately:

Total benefit from merger = PV AB – ( PV A + PV B )

However, it must be taken into account that the increase in value is of a certain abstract nature - it will take place only in the future, after the merged companies have gone through the integration stage and the activities of the new company are stable; at the time of the merger, there can be no increase in the value of the merged company.

The total benefit is distributed between the companies A And B. Moreover, the benefit of one of the parties is the cost of the other.

For company A, the cost will be the excess of the purchase price of company B over its actual current value PV. Accordingly, this excess, in turn, is a benefit for company B.

Company A's costs (company B's benefit) = Purchase price - PV B

That is, how much more company A pays than it receives is its costs. Let's take a closer look at costs.

The shareholders of Company B receive a certain premium over the market price of the shares upon merger. The market price (MV) of company B is always different from its actual present value (PV). Therefore, in order to take into account the premium to shareholders of company B, the original formula should be transformed:

Company A's costs (company B's benefit) =

(Purchase price - MV B ) + ( MV B - PV B )

Thus, the costs of company A will be the sum of the premium paid to the shareholders of company B and the difference between the market and the actual current value of company B.

All this applies to acquisitions, where bonuses to the shareholders of the acquired company B are carried out in cash.

When carrying out direct mergers where shares are replaced, that is, when the shareholders of company B receive shares of company A in exchange for their shares based on a certain proportion, one must also take into account such a factor as the value of shares of company A at the time of the merger. Depending on whether the market price of shares rises or falls from the moment the merger is announced to the actual implementation of the transaction, the costs of company A can correspondingly increase or decrease, because if the shares of company A rise in price, then the shareholders of company B receive more value when replacing shares, and vice versa .

The remaining part of the total benefit, that is, the difference between the total benefit and the costs of company A, will constitute the net benefit of the company's shareholders A ( at the same time these are costs for company B). That is

Company A's net benefit = PV AB – ( PV A – PV B )- (Purchase price - PV B )

Thus, if the shareholders of the acquired company benefit from the merger already when the merger is announced, then for the shareholders of the acquiring company the benefit is rather long-term in nature. Their share of the overall benefits of the merger will revert to them once the combined company is operational and the synergies begin to generate consistently high cash flows. Only when they have hope of receiving high dividends will the market price of the combined company begin to rise, increasing the wealth of the acquiring company's shareholders (i.e., the wealth of the acquired company's shareholders will increase in almost all cases, while the "wealth" of the shareholders The acquiring company will grow only if the financial performance of the combined company improves, which should be an incentive for the company's senior management.) In this regard, the company's management should not expect to receive high profits in the short term at the expense of the long-term efficiency of the company.

With a certain ratio of financial indicators, namely, when a more profitable and more “expensive” company purchases a “lagging” and unpromising company, it is possible to achieve an artificial increase in the profitability of the shares of the merged company. This effect misleads shareholders into believing that the company's performance has improved, which falsely increases the market price of the company's shares. This way, the company can continue to pursue mergers while delivering strong earnings per share growth to shareholders. However, this growth will only be short-term growth; in the long term, such mergers with “weak” companies can lead to unprofitable businesses.

In the current market conditions, protection against a hostile takeover is the main task for companies of all forms of ownership.

Anti-takeover protection is a special technique, the use of which reduces the likelihood of a hostile takeover of a company. Depending on the situation, the initiator of creating protection against a hostile takeover may be the company’s management or a group of large shareholders.

The threat of a hostile takeover can be reduced and often eliminated.

The intensity of a corporation's defensive actions can vary from the use of the softest and most harmless methods to the extremely tough and radical. Whereas a soft defense may force the acquiring corporation to merely reconsider its tender offer without having any impact on the outcome of the merger, a hard defense may completely block the acquiring corporation's tender offer and provide the defending company's management with a veto over the merger.

There are currently two competing hypotheses: the shareholder wealth hypothesis and the management wealth hypothesis.

Shareholders Welfare Hypothesis )

The shareholder wealth hypothesis states that equipping a corporation with anti-takeover systems increases the current wealth of its shareholders. According to this hypothesis, the sources of increase in shareholder wealth can be the following:

All transactions in which there are contradictions between the parties involved regarding the value of the object being sold involve a lengthy process of agreeing on the price, and a hard takeover is no exception. In a hard takeover, the acquiring corporation attempts to negotiate the size of the tender directly with the target corporation's shareholders, while ignoring its management. Excluding managers from the process of agreeing on the size of the tender offer can significantly reduce the welfare of shareholders, since the latter are not able to negotiate as effectively as their managers to agree on the price of repurchase of shares and can “surrender” them at too low a price. Some protections will prevent the acquiring corporation from ignoring the target corporation's management. In addition, protection itself slows down the takeover process, and at this time competing purchasing corporations may become interested in the takeover, and increased competition inevitably entails an increase in the size of the tender offer.

Many empirical studies conducted in recent years support this assumption. For example, competition has been found to increase the share repurchase premium for target corporation shareholders from 24% to 41%.

Other studies have found that competition in a hard takeover increases the size of the tender offer by an average of 23%.

The constant threat of a tough takeover can cause corporate managers to focus their attention not on the stability and prosperity of their company in the long term, but on its current profitability indicators. Management begins to reduce the volume of investments in R&D and reject investment projects whose payback period exceeds 2-3 years. Indeed, if a corporation can be absorbed not today or tomorrow (and after a hard takeover the management of the corporation will be replaced), then it would be naive to expect that the management of the corporation will be interested in the long term. Moreover, the size of his salary depends primarily on the current performance of the corporation. Such management behavior will lead to a decrease in the value of the company and, as a result, to a decrease in the welfare of its shareholders. Anti-takeover protection helps solve this problem. For example, a manager may be guaranteed to receive large bonus payments if he is removed from his position after a tough takeover.

However, in the light of recent research on the market for corporate control, this hypothesis looks rather pale. The assertion that managers, acting as intermediaries for shareholders, are able to increase the size of the tender offer does not inspire confidence. Regarding the delay of the takeover process, the shareholders, with their disorganization, will be able to do this better than any manager. There is a wealth of research on the impact of the threat of a hard takeover on a corporation's long-term investment. For example, investments in R&D can be considered as long-term investment projects. According to the hypothesis just discussed, after the installation of protection we should see an increase in R&D investments. However, in practice, a completely opposite situation is observed - as soon as management installs protection on its corporation, the volume of investments in R&D not only does not increase, but decreases. Perhaps management is pursuing slightly different interests when deciding to protect their corporation?

Managerial welfare hypothesis )

In contrast, the managerial wealth hypothesis argues that protection from a hard takeover reduces the wealth of a company's shareholders.

Management, by establishing protection against a hard takeover, pursues its own interests, namely, it tries to artificially weaken the disciplinary function of the market for corporate control. By establishing protection against a hard takeover, the manager primarily protects himself, and not his shareholders. Now, no matter how poorly he runs the corporation, he is not in danger of losing his job (or the likelihood of losing it is significantly reduced) due to a hard takeover. Let us remember that the well-being of a company's management is wages. The size of these salaries is closely linked to the current financial condition of the corporation (through profit-sharing schemes, bonus payments and management options held by managers). Clearly, the risk of lost wages is closely related to the risk of a corporate takeover. As soon as a company's performance declines, the likelihood of a hard takeover immediately increases and, as a result, the likelihood of lost wages increases. It is highly likely that risk-averse managers will seek to reduce this risk in every possible way, one of which may be to provide the corporation with anti-takeover protection. Protection reduces the likelihood of a corporate takeover, and therefore reduces the risk of lost wages. Thus, defensive actions that do not benefit shareholders may benefit management, which is similarly trying to reduce its risks.

Providing takeover protection to a corporation is often viewed as an agency problem within the company. To do this, it is enough to assume that the parties to the agency relationship (the manager is an agent of the shareholders, who theoretically should maximize the welfare of the shareholders) will maximize their own welfare.

Thus, many management decisions will harm the welfare of shareholders. This “harm” is called agency cost. But what is a cost for shareholders is net profit for management.

Most protection methods can be classified into two groups:

Protection methods created by the corporation before the immediate threat of a hard takeover appears;

Protection methods created after the tender offer to repurchase shares has been made. – emergency measures

Potential effectiveness is defined as low if its application causes only some inconvenience to the aggressor company or forces it to restructure the tender proposal without significantly increasing its size.

Potential effectiveness is defined as high if its use makes it possible to completely block any potential takeover attempts, vetoing any changes in control of the company.

The most effective and completely blocking any types of takeovers are all modifications of “poison pills” and the highest class Recapitalization (discussed in more detail below).

All other methods, at best, can force the aggressor company to restructure the tender offer, increase its costs, or delay the process of a hostile takeover.

Division of the board of directors

The method involves introducing a clause into the company's charter that stipulates the procedure for dividing the board of directors into three equal parts. Each part can be elected by the meeting of shareholders for only one year and so on for three years. Thus (theoretically) the acquiring company is deprived of the opportunity to gain immediate control upon acquisition of 51% of the shares. This will require at least waiting for two annual meetings in order to appoint representatives to the board of directors.

Supermajority condition

This method also involves amending the company's articles of association, but now to set the high percentage of voting shares required to approve the merger. This restriction simultaneously applies to making decisions on the liquidation of a company, its restructuring, the sale of large assets, etc. In most cases, the barrier is set between 66.66 and 80% of shares. Such a restriction significantly complicates a hostile takeover, since the size of the controlling stake increases, which leads to increased costs for the aggressor company.

Fair price method

The fair price condition stipulates the condition for the repurchase of more than 20 (30)% of the voting shares. This condition complements (tightens) the supermajority condition and, as a rule, is not applied separately from it. The main goal is to prevent the so-called. bilateral tender offers, in which the price offered per share in a large block is higher than in a smaller block. This protection forces the acquiring company to restructure the tender offer, while the victim company gains some time. At the same time, the use of this protection does not entail an increase in the tender offer.

"Poison Pill"

In general terms, poison pills are rights issued by a target company to its shareholders, giving them the right to purchase additional shares of the company's common stock upon the occurrence of a specified event. The catalyst for the exercise of the right of repurchase can be any attempt to change control of the company that is not agreed upon by the board of directors of the target company.

Appendix 2 briefly summarizes all the main types of poison pill defense:

There are at least six main types of poison pills, some of which are listed below:

· Preferred stock plans

An issue by a target company of convertible preferred stock that is distributed to its shareholders in the form of dividend payments on common stock. The holder of a convertible share has the same voting status as a holder of a common share.

· Flip-over plan

The target company declares dividends on its common stock in the form of rights to purchase a specific class of its securities. The acquisition price is set at a level significantly higher than the market value of the securities for which the right to purchase has been issued. The rights cannot be exercised until the aggressor company has acquired a large block of shares or the company has received a tender offer.

· Flip-in plans

Flip-inplan is an additional "attachment" to the flip-overplan described above. If the aggressor company transfers the assets of the acquired company on terms that discriminate against its shareholders or reduce their net wealth, the shareholders of the target company have the right to buy back the shares of the aggressor company at a significant discount from their market value. Thus, the use of flip-in protection makes a takeover a more capital-intensive project for the aggressor company and, at the same time, protects the rights of shareholders of the target company.

· Flip-out plans

This type of "poison pill" is a purely theoretical concept, which is as follows. Once a target company is subject to a hostile takeover attempt, its shareholders receive rights to buy out the shares of the aggressor company. And, in the end, only theoretically, the aggressor company, having absorbed the victim company, discovers that it has acquired its own assets. Flip-outplan is similar to the “Pacman defense” often mentioned in the literature, which consists of a counter-offensive of the victim company against the shares of the aggressor company.

· Back-end plans

The back-endplan protection procedure almost completely repeats the flip-overplan, with the exception that the rights are distributed not to purchase ordinary shares, but to purchase debt instruments. The aggressor company is faced with the problem of servicing a huge debt load.

· Voting plans

Votingplans is the most extreme version of the poison pill. In this method of defense, the victim company announces to its shareholders that it will pay dividends in the form of preferred shares. In the event that an individual or group of individuals becomes the owner of a “significant” block of common and preferred shares of the victim company, the holders of preferred shares (except for the owner of the “significant” block) receive the right to “supervote” and the owner of the “significant” block is deprived of the opportunity to use your blocking package to gain control over the victim company.

In the early 90s, in addition to the classic “poison pills”, some of their extensions appeared - poisonous securities.

All toxic securities can be divided into two types: toxic stocks and toxic puts.

The only difference between poison securities and poison pills is their higher liquidity.

· Poisonous shares [ Poison Share ]

Poison shares are non-voting preferred shares of the target company that are freely traded on the market. As soon as a company becomes the target of an attack by an aggressor company, the owners of preferred shares (with the exception of the aggressor company) receive super voting rights on their shares (usually one vote on a preferred share is equal to ten on an ordinary share). Thus, the aggressor company (as in the case of votingplan protection) is unable to gain control of the target company through a simple majority of votes.

· Poisonous Fetters

Poison puts are nothing more than put options on the debt instruments of the victim company, distributed by it to its shareholders. The owner of such an option receives the right to exercise it as soon as his company is taken over.

There are two generations of poisonous bonds:

The first generation establishes that once the target company's board of directors determines a takeover to be hostile, the aggressor company must immediately repurchase all underlying debt obligations covered by the poison options.

The second generation obliges the aggressor company to immediately repurchase the debt obligations, regardless of which tender (friendly or hostile) the company was acquired through.

Top class recapitalization is a fairly popular and very tough type of Pre-Offer protection. The defense comes down to the following. All company shares are divided into two classes: shares with ordinary voting rights (lower class) and shares with increased voting rights (higher class).

Premium shares are allocated only to shareholders of the target company. The level of dividends and liquidity for these shares is lower than for ordinary shares. The victim company pursues the goal of exchanging high-class shares for lower ones as quickly as possible. In addition, it is established that managers of outsider companies cannot be participants in such an exchange.

After such an exchange (recapitalization), the management of the victim company, even having a relatively small block of ordinary shares, will always have a majority of votes.

The use of this protection completely blocks all attempts to carry out a hostile takeover.

· Stop – Standstill agreement

A stop agreement is a contract concluded between the management of a target company and a major shareholder, which for a certain period limits the latter from owning a controlling stake in the common voting shares of the target company.

Quite often, the victim company accompanies the signing of a stop agreement with a targeted buyout of part of the package owned by the aggressor company, and in this case the protection is called “green chain mail”.

This is one of the most successful methods of Post-Offer protection, and, at the same time, a method that has the most detrimental consequences for the welfare of the shareholders of the victim company. The decrease in the current share price may be 10–15%.

· Litigation ( Litigation )

Litigation is the most popular method of defense.

Most lawsuits are filed for violations of antitrust and stock market laws.

As a result of initiating litigation, the victim company can delay the acquiring company (court proceedings, hearings, retrials, etc.) and at the same time significantly increase the cost of the takeover (the aggressor company would rather agree to increase the tender offer than incur huge legal and transaction costs) .

In Russian practice, the litigation method of protection is used, as a rule, in combination with other methods of protection, but is used first.

The use of this method of protection allows you to gain the necessary time to carry out other protective measures.

· Asset Restructuring

Asset restructuring is the most brutal method of Post-Offer protection against the aggressor company.

As a result of the restructuring of the assets of the victim company, the acquiring company finds itself in a situation where, after acquiring the victim company, it does not have the assets it expected, and on the basis of which the synergistic effect of the acquisition was previously calculated.

A classic example of asset restructuring is the sale of Rolls-Royce, where the brand was transferred to another company and sold separately from the enterprise.

Such protection can quickly make the company less attractive to the aggressor company, and also significantly reduce the cost of takeover.

The negative consequences associated with the use of this method are that if the aggressor company refuses the transaction, the consequences of asset restructuring will go to the victim company in full.

The method of asset restructuring is quite often and successfully used in modern Russian practice.

· Liability Restructuring

The method of restructuring liabilities is:

1. Carrying out an additional issue of ordinary voting shares placed among “friendly” external investors

2. Carrying out a large issue of debt obligations (short- and long-term bonds), at the same time, the funds received from the placement of bonds are used to repurchase their ordinary shares traded on the open market or held by large but “unfriendly” shareholders.

The first procedure ensures that the management of the target company feels more confident during the voting procedure of the shareholders' meeting.

In the second case, an increase in the debt burden on the company reduces its attractiveness as a takeover target for the aggressor company, and, in addition, the additional repurchase significantly complicates the process of acquiring a controlling stake by reducing the number of shares available for repurchase by the aggressor company.

In modern Russian practice, the method of restructuring liabilities is used quite often.

· Reincorporation ( reincorporation)

The method of protecting reincorporation is to move the jurisdiction of the victim company to another region in which there are stricter positions of antimonopoly, tax and other competent authorities than in the one in which it is currently registered.

Theoretically, such protection can significantly complicate the takeover of a reincorporated company, but in practice, the process of re-registration of documents is an extremely lengthy process.

The victim company will most likely already be absorbed by the aggressor company before the reincorporation process is completed.

Reincorporation significantly reduces the wealth of the victim company's shareholders.

The average stock price decline over the long term is 1.69%

In modern Russian practice, the reincorporation method is used quite often, mainly in combination with tax cost optimization projects.

· Compensation parachutes ( Severance parachutes )

Compensation parachutes are terms included in managers' contracts that, in the event of a hostile takeover, guarantee that they will receive significant compensation payments. After all, most likely, after the takeover, the aggressor company will completely replace the entire former management, which cannot but affect the welfare of the latter.

Theoretically, the threat of large losses as a result of compensation payments after a takeover should discourage the aggressor company from a hard takeover or make it an unattractive project.

The volume of compensation parachutes rarely exceeds 1% of the absorption cost.

The lifespan of such contracts rarely exceeds 1 year; most often they are concluded 6-8 months before the proposed hostile takeover.

In modern Russian practice, the method of protection by compensating parachutes in its pure form is rarely used, but, as a rule, in combination with the method of restructuring liabilities described above.

· White knight ( White Knight )

In the event that the victim company becomes the target of a hostile takeover, its management (as well as the meeting of shareholders) may approve the implementation of white knight protection.

Protective actions come down to searching for and inviting a third company to carry out a friendly takeover - a white knight, a more friendly company to the management of the victim company.

The white knight most often becomes a company that, for one reason or another, is preferable to the management of the victim company as a buyer, a company in which the management of the victim company is confident that it will not completely destroy the purchased company as an organizational unit and carry out mass layoffs of it personnel.

The size of the tender offer of the white knight and the aggressor company in practice does not differ much.

The white knight defense method is quite often used in modern Russian practice.

· White Squire ( White Squire )

This defense method is a modification of the white knight defense method with the only difference - the white squire does not gain control over the victim company.

The White Squire is also company friendly towards the victim company.

The protective action consists of the victim company making an offer to the white squire to buy out a large block of its shares, accompanied by the signing of a non-interference agreement.

Thus, the “shark takeover” is deprived of the opportunity to obtain a majority of votes at the shareholders’ meeting, which means that conducting a hostile takeover becomes a pointless undertaking.

As a reward, the white squire may receive seats on the board of directors or increased dividends on the shares he purchased.

Currently, in Russia the White Squire method of protection is used relatively rarely.

· Pacman Defense ( PacMan Defense )

It consists of a counter-attack by the victim company against the aggressor company in the event of a hostile takeover attempt by the latter.

Such protection is practically no longer used at present.

The main problem with its use is the significant amount of financial resources required to carry out a counter-offensive against the buyer.

Therefore, only the victim company, which significantly exceeds the aggressor company in volume, including the volume of financial resources, can hope to successfully carry out such protection.

But if this were so, then the threat of takeover would never have arisen (70-80% of all hostile takeovers are carried out by aggressor companies that significantly exceed the victim companies in terms of volume of operations and financial resources, or, in extreme cases, they are equal in these characteristics) .

The Russian practice of corporate mergers and acquisitions was formed against the backdrop of an undeveloped legal framework in the field of corporate law and the absence of historically established, evolutionary economic relations, which made hostile takeovers the most effective method of corporate strategy in Russia. In fact, the methods of hostile takeovers and the corresponding protective measures used in Russia at the initial stage of the formation of statehood have undergone certain changes only thanks to the development of corporate legislation. Exclusively in connection with this process, some of the means used to protect against hostile takeovers can no longer be as effective as at the dawn of the formation of the Russian corporate market. As a result of new legislative changes, the protections against hostile takeovers used in Russia are no longer purely administrative in nature and are approaching the protections widely used throughout the world.

Below we will consider the economic and legal methods common in Russia to resist a potential invader, which are used by the management (shareholders) of the “victim” company:

· purchase of shares by companies owned by management, or the company’s repurchase of its own shares, including with their subsequent sale to employees and administration (of companies owned by it) to increase the share of “insiders” to the detriment of outside shareholders. This strategy became widespread in Russia in the second half of the 1990s.

· control over the register of shareholders, as well as restricting access to or manipulation of the register of shareholders. This method is effective with complex protective measures: its use without any additional means cannot prevent absorption.

· changing the size of the company's authorized capital, in particular, a targeted reduction in the share of specific “foreign” shareholders by placing shares of new issues on preferential terms among the administration and employees, as well as friendly external and pseudo-external shareholders. Thus, the risk of takeover is reduced due to the coordinated actions of all structural divisions of the company;

· involvement of local authorities to introduce administrative restrictions on the activities of “foreign” intermediaries and companies buying shares of employees.

· legal actions to invalidate certain share transactions, supported by local authorities.

Other means of protection

The list of means used in Russia to protect against a hostile takeover is not limited to the measures described above; Moreover, there are no restrictions on expanding the arsenal of methods both for carrying out a takeover and for protecting against hostile corporate actions. It is worth emphasizing once again the Russian characteristics of protective equipment - in addition to the measures already described, we present a number of methods characteristic of Russian companies:

· “blackmail” of local authorities by management if the enterprise is a budget-generating enterprise;

· introduction of various material and administrative sanctions in relation to employee-shareholders intending to sell their shares to an “outside” buyer;

· formation of dual power in the company (two general meetings, two boards of directors, two general directors);

· withdrawal of assets or reorganization of the company with the allocation of liquid assets into separate structures, etc.

At this stage of development of the Russian corporate mergers and acquisitions market, the national component is obvious, reflecting the peculiarities of the development of market relations in the country. Most of the remedies against hostile takeovers used in Russia cannot be unambiguously qualified in accordance with the recognized global institutions of corporate takeovers, since not only the range of means of gaining control over the “victim” company, but also the remedies against such a takeover do not fall under standard criteria accepted in international practice. Nevertheless, I would like to note a shift in Russian corporate legislation. The shift is definitely positive.

Conclusion

Mergers and acquisitions play a significant role in corporate governance. For further growth, companies, among other things, should pay special attention to transaction opportunities, regardless of the motives and directions of further development, for example, whether it is increasing the value of the company, the desire to achieve or strengthen a monopoly position, reducing taxes or obtaining tax benefits, diversification into other types of business. Very often, Russian companies choose mergers as one of the few ways to counter the expansion of more powerful Western competitors into the Russian market.

It should be noted that in practice, one of the most frequently cited motives for mergers or acquisitions is to save on expensive work on the development and creation of new types of products, as well as on capital investments in new technology. This is followed by the motive of savings from reducing administrative costs for maintaining an excessively large administrative apparatus. Economies of production scale (reduction of current production costs) are of comparatively less importance, although they are also significant.

It is recommended to develop a merger or acquisition strategy based on the overall development strategy of the organization. The company needs to assess at the highest level how well the merger or acquisition under consideration corresponds to the mission and goals of the company, how it fits into the overall strategy of the company and how organically it can fit into the action plan for implementing the strategy.

The Board of Directors should play a key role in creating an effective company development strategy using the mechanism of mergers and acquisitions. And how well-thought-out and organized the merger or acquisition will be depends on how competently and balanced the relationship is built between the Board of Directors and the executive body of the organization in matters of developing the overall strategy of the company, and in particular in matters of decision-making on mergers and acquisitions.

In addition to studying both global and Russian experience in mergers and acquisitions, organizations are recommended to take into account the national characteristics of the process of gaining control over companies and take into account the mistakes of participants in transactions. A special role is played by the development of a defense scheme against a hostile takeover. This can be the basis for the growth or even survival of any company.

Enterprises that are predisposed to mergers and acquisitions are in most cases very large companies that are 100% confident in achieving their goals. But there are a number of reasons why some of these goals are not achieved. Therefore, a detailed study of the problem of mergers and acquisitions should be approached not only by victim companies in order to avoid unwanted takeover, but also by absorbing companies in order to achieve maximum returns from planned actions.

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26. Hokkanen, T. Practical experience in restructuring Russian enterprises // Problems of theory and practice of management. No. 6, 1998.-P.103-106.

27. On joint stock companies: Federal Law of December 26, 1995. No. 208-FZ // ConsultantPlus, - 2008.

28. On limited liability companies: Federal Law of February 12, 1998. No. 14-ФЗ//ConsultantPlus, -2008.

29. On some issues of application of the Federal Law “On Limited Liability Companies”: Resolution of the Plenum of the Supreme Court No. 90, Plenum of the Supreme Arbitration Court of the Russian Federation No. 14 of December 9, 1999//ConsultantPlus, -2008.

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31. On measures to implement industrial policy during the privatization of state-owned enterprises: Decree of the President of the Russian Federation of November 16, 1992. No. 1392//ConsultantPlus, -2008.

32. On the protection of competition: Federal Law of July 26, 2006. No. 135-FZ//ConsultantPlus, -2008.

33. On some issues of application of the Federal Law “On Joint-Stock Companies”: Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated November 18, 2003. No. 19//ConsultantPlus, -2008.

34. Galpin, T.D., Hendon, M. A complete guide to mergers and acquisitions of companies [Electronic resource]. - Access mode: http://www/books.allmedia.ru.

35. Rudyk, N.B., Semenkova, E.V. The market for corporate control: mergers, hard takeovers and buyouts with debt financing. - M.: Finance and Statistics, 2000.

36. Sokolov, S.V. International practice of protection against hostile takeovers [Electronic resource]. - 2002. - Access mode: http://www.investors.ru/

Pre-Offer Defenses Annex 1

Appendix 2

Post - Offer protection methods Appendix 3.

Table continuation Post - Offer protection methods

Appendix 4

On joint stock companies: Federal Law dated December 26, 1995. No. 208-FZ, Chapter II - Article 16.

Ratsiborinskaya, K.N. “Merger”, “absorption” and “separation of companies” in the light of Russian law and EU law: the relationship of concepts // “Lawyer” No. 9, 2003.-P.27

Sokolov, S.V. International practice of protection against hostile takeovers, p.-22

Sokolov, S.V. International practice of protection against hostile takeovers, p.-23

Sokolov, S.V. International practice of protection against hostile takeovers, p.-25

Sokolov, S.V. International practice of protection against hostile takeovers, p.-26

See also there, p.-27

Sokolov, S.V. International practice of protection against hostile takeovers, p.-28