I need a Replies of at least 450 – 600 words
Each reply must incorporate at least 2 scholarly citation(s) in APA format. Any sources cited must have been published within the last five years. Acceptable sources include the textbook, scholarly peer-reviewed articles, and the Bible.
Throughout the history of Mergers and Acquisitions, the methods to obtain a target company have evolved. One of the most defining and controversial methods being the hostile takeover. Throughout the 1980s, takeovers began growing in popularity, and with that came more advanced takeover tactics. This ultimately led to the need and creation of antitakeover defenses. The development of defensive tactics has come with a price. Many firms are faced with the decision of a cost-benefit. The more defensive strategies that a company prepares, the more that it will cost the company. The size of a firm, amount of capital, and industry will also determine which defense tactics are in place. The level of expenditures on corporate defense will affect the value of shareholders’ investments. These considerations must be taken into account when management evaluates their position. Two takeover defenses that will be analyzed are the “white knights” defense and the “Pac-Man defense”.
The “white knights” defense is reliant upon the target company seeking out other companies to provide more suitable offers than the hostile bidder. Seeking a white knight requires another company to make an offer that would buy all or part of the company for better terms. Often times, the target company is looking for a higher price or terms that will allow managers and employees to remain with the company. This less favorable terms make it unlikely for another company to agree to, so this strategy can be difficult to accomplish. Many times, the white knight company will ask for favorable terms or advantages that are found to be unfair to the hostile bidder which may be a violation of the target’s Revlon duties. (Gaughan) White Knights bids often have negative effects on the shareholders’ wealth. A common explanation is that these kinds of bids are not planned. Therefore, they do not yield long-term benefits for the acquiring firm’s shareholders. A study done on the success of white knight bids states, “the success of a takeover does not result in excess returns for the white knight; neither does it result in especially poor performance.” (Smiley) Even though a bid might not be extremely detrimental to shareholders, this strategy has provided negligible benefits to the shareholders.
The Pac-Man defense is widely considered to be the most extreme defensive tactics. It consists of the target company making a counteroffer to buy the raider company. It is an uncommon strategy and is essentially a final line of defense even being nicknamed a “doomsday machine.” (Gaughan) This threat typically results in the hostile bid being withdrawn or altered to a more favorable offer. The main goal for using this strategy is to avoid a change of leadership and retain control. (Eleftheriadou) The price to maintain control by using this strategy is expensive. It can increase debts and shareholders could experience losses in the upcoming years. In a similar situation as the white knight defense, the target company did not plan to make an acquisition so it might not have the appropriate capital or structure to support it which will hurt stockholders.
The important Biblical application of these corporate defense tactics is the need for self-defense. Timothy 5:8 reads, “But if any provide not for his own, and especially for those of his own house, he hath denied the faith, and is worse than an infidel.” (NIV) Every person has the responsibility to protect their own family. The same should apply to business and interests that people are invested in. All executives must carry the responsibility of protecting their shareholders and employees.