In the 80s. Looking for ways to protect their firms and themselves from hostile takeover attempts, managers and boards of potential takeover firms have tried various methods. Some of them seem to have justified themselves as a means of effectively defending legitimate interests in the face of threats from raiders or strengthening the position of the company's management in negotiations so that, in the end, when the company is sold, the shareholders would receive the maximum possible amount.
However, other methods of protection have led to the emergence of acute ethical and socio-political problems.
Inappropriate and forced offers. At first glance, it is difficult to explain the existence of hostile takeover protection measures by anything other than the desire of firm managers and their allies on the boards to maintain their positions. It can be assumed that if the price offered by the buyer is lower than the real value of the company, the shareholders will simply reject this offer. However, in reality the situation is somewhat more complicated.
First of all, it can be difficult for shareholders to determine the value of a firm. As a result, they may not accept the most advantageous offer for them. If the managers and board of a given firm are in the interest of shareholders, then they should try to ensure that the firm is sold only at the highest possible price. However, it may take time to figure out how much you can even get from the party that has already made the offer. For example, it may be necessary to find another bidder for the firm's shares so that competition raises the price to the highest possible level. Therefore, safeguards that allow management and the board to delay the sale process can provide added value to shareholders.
Moreover, in practice, offers can often be forced, in the sense that individual shareholders may feel pressure to sell shares even if they are aware that the interests of shareholders as a whole require rejection of the offer. In order to understand the reasons for this phenomenon, it is easiest to consider the situation that arises when the offer of the buyer involves the purchase of only a controlling stake. (Small shareholders may feel similar coercion with other acquisition options.) Assume that a raider makes a preferential offer to buy 51% of the shares at a price of pr, but this offer is valid if he acquires at least 51% of the shares. Having achieved its goal, the buyer can achieve by voting a decision to merge this company with another owned by him; at the same time, the valid shares that he did not initially acquire will be bought at a different, lower price.
Let us now consider the incentives that exist for a small shareholder, whose decision has practically no effect on the likelihood of a buyer acquiring 51% of the shares. If the percentage of shares offered to the buyer is less than 51%, the decision made by this shareholder will not matter, since the transaction will not take place. If the buyer is offered 51% of the shares or more, then this individual will receive p2 if he refuses the initial offer, but if he agrees to this offer, he has a chance to receive pr Thus, consent is a win-win: only it gives the shareholder a chance to get a higher price pr for his shares. However, there is no guarantee that the price px, let alone p2, will be attractive to the shareholder. In the United States, individual state laws guarantee that p2 cannot drop too far from the price of the acquired company's shares before the merger, but both px and p2 can be much lower than the price that shareholders believe is real - and yet they will feel compelled to sell their shares. promotions!40
Although such coercion is theoretically possible, we note that it can only take place if there is only one party willing to acquire shares in the firm. Accordingly, its empirical significance and its explanation for the adoption of measures to protect against hostile takeovers are doubtful. In particular, the management of the firm can eliminate the threat of such coercion by organizing a share buyback on its own (unless the forced offer comes from the management itself!).
Protection methods. The variety of defenses against hostile takeovers that have been developed is truly astonishing.41 Poison pills (see Chap. 1b) add to the cost of takeovers, because if there is a change in ownership of a controlling interest, of a large block of shares, the former shareholders acquire additional voting rights Differentiation of voting rights can give additional votes to those shareholders who own shares for a long time; .Different shapes
I 40 Curiously, if the acquirer is simply trying to buy control
1 package and cannot prevent shareholders who did not respond to his offer to sell their shares at their full value after the takeover, then the optimal behavior strategy for small shareholders is to refuse to sell shares until a price is offered to them, equal to the full value of the shares after the takeover. In this case, again, unless control of the firm changes hands, the decision of any individual shareholder will be irrelevant. If there are changes, then the shareholder who accepted the offer to sell shares will receive the offered price p. The shareholder who rejected the offer receives v - the value of the share with the new composition of owners. For a much more detailed discussion of this topic, see: Weston J. F., Kwang S. Chung, Hoag S. E. Mergers. Restructuring and Corporate Control. Ch. twenty.
Scorched-earth tactics involve deliberately reducing the value of a firm to the acquirer, even if it also reduces its value to shareholders. For example, Marathon Oil, resisting a takeover attempt by Mobil, granted USX the right to acquire at a discounted price its "master treasure" - the oil field in Yeats in the event that any other company takes control of Marathon ".
A similar but less drastic remedy is firm restructuring, which makes it harder for the raider to repay its loans after the merger. For example, a firm can separate from itself the most attractive divisions, at the expense of income from which the raider can expect to repay the loans he has attracted after the merger. In addition, the corporation may reduce its financial resources, which could also be used to repay loans after the takeover. One possible way to carry out this operation is to buy shares, another is to buy other companies at prices that may turn out to be inflated. Closed, or protected, boards where only a subset of members are re-elected each year, and overwhelming majority rule that any change in control of a firm must be approved by at least 90% of the votes make it difficult to gain control of a firm even after purchasing as many shares as otherwise forms a controlling stake. The move could be bolstered by a large shareholding for ESOP, which is expected to be voted in favor of the administration as workers fear losing their jobs in a takeover. The state in which the firm is incorporated may enact regulations to prevent hostile takeovers; such rules, for example, were introduced in Minnesota to protect Dayton Hudson; in addition, the company may re-register in a state where such rules apply. This list is just the tip of the iceberg.
All of these methods could only be seen as the gimmicks of managers defending their positions, were it not for the fact that the use of many of them can be prohibited by the board of directors. This means that these measures can be used both to frustrate unwanted proposals and to strengthen the board's negotiating position. Of course, if the board and administration are positive about the proposal, they refuse to use protection measures. To get an idea of how various hostile takeover defenses work, let's take a closer look at the three defenses.
"Golden Parachutes" As noted in Chapter 13, the golden parachute is a clause in an executive's contract that provides him with some very attractive compensation in the event that control of the corporation changes hands. One of the strongest arguments advanced in defense of golden parachutes is that professional leaders have a legitimate right to expect protection from the rewards they have earned through years of hard and skilled work. Moreover, in the absence of adequate protection, executives will fiercely resist any attempts to undermine the rights they have won, which will dramatically reduce the likelihood of profitable takeovers, make it impossible for firms to make painless changes, and divert their attention from those activities that create value.
PARAMOUNT AND TIME WARNER: IN WHOSE INTERESTS?
In early 1990, Time, Inc. - the largest magazine publisher in the United States (Time, Fortune, People, Sports Illustrated magazines) acquired Warner Brothers, a company specializing in the production of films, television programs, video and audio recordings (the recording company Warner-Reprise " and "Atlantic"); however, according to most observers, in reality, it was Warner that absorbed Time.
The firms were negotiating a shareholder-approved merger when Paramount Communications (film, sports, and publishing - it owns Prentice Hall) offered to buy all of Time's stock at a price of $200. per share paid exclusively in cash. Having secured a court order giving the firm's board the right to simply say "no" to the offer - without consulting stockholders - Time bought Warner for what knowledgeable observers estimated was a generous premium. This way the transaction was carried out meant that Time's management did not have to vote among the firm's shareholders, who might prefer to sell their shares to Paramount.
Time's administration claimed that the acquisition of Warner brought the firm's real net asset value per share to $250. and, accordingly, the offer of "Paramount" - 200 dollars. per share - was completely unacceptable. However, the market price of Time Warner's shares never exceeded $125, and in June 1991, as a result of the firm's efforts to liquidate much of its merger debt, its share price fell to less than $85. per share.
Source: Jarrell G. A. The Paramount Import of Becoming Time Warner: A Present-Value Lesson for the Lawyers // Wall Street Journ. 1989. 13 Jul. A-14.
These two arguments are easily understood from a performance perspective: executives may not be willing to invest in their careers unless they are confident that the returns from such investments cannot be easily appropriated by outsiders. Moreover, if managers' investments in their careers are not protected, they will, to the detriment of their duties, expend energy resisting hostile takeover attempts; as a result, both they and the raiders will spend huge amounts of money on paying for the services of lawyers and other specialists, and in general there will be an unproductive expenditure of resources that does not provide any increase in production. These costs represent influence costs; they arise in the process of the struggle of individual individuals for the preservation of their non-guaranteed rents.
In general terms, these arguments are in line with the arguments we have already made about the benefits of secure property rights. It is difficult to give a general assessment of such arguments, since in each specific case it is necessary to test their initial positions. On the whole, given that executives have made some valuable, specific investments over the course of their careers, it is surprising that raiders so often seek to get rid of these executives. It seems more reasonable to assume that the raiders are getting rid of those managers who are not doing their job well and who will desperately resist the takeover because they cannot expect similar working conditions in other firms.
In any case, "golden parachutes" are usually given only to the most senior executives, who have already made most of the possible investments in firm-specific human capital. Therefore, the explanation of this practice by considerations of stimulating investment seems unacceptable, at least for this category of managers.
The first objection to the use of "golden parachutes" is that they do not protect the firm, but the managers "entrenched" in it, which is costly to shareholders. Moreover, if these "parachutes" are too large, managers may be too willing to encourage changeover operations and fail to protect the interests of shareholders. Further, this practice can encourage valuable employees to leave the firm after a change of ownership, which reduces the attractiveness of even desirable mergers.
Redemption payments. The main problem with the implementation of measures to protect corporations from raiders is that these measures can be used both to protect incompetent management and to protect the interests of managers even when they are contrary to the interests of shareholders and other parties. One of the most morally disturbing examples of this problem is the practice of payouts, which are essentially bribes paid by managers of firms to raiders from shareholder funds in order for the raiders to give up their encroachment on these firms (although such payments are not are against the law). ]
An example of payouts is the case of Walt Disney! Productions. At the beginning of 1984, the price of the shares of this company fluctuated between 50-55 dollars. per share. Raider Saul Steinberg started buying up these shares, and their price began to rise. On June 4, 1984, an article appeared in Forbes magazine stating that total cost the assets of this company - in the event of their sale in parts - will amount to 110 dollars per share. On June 8, Steinberg offered to buy a 37% stake in Walt Disney Productions for $67.50. per share. After three days of negotiations, the firm agreed to buy back Steinberg's shares at a price of $70.83. and pay him another 28 million dollars. as reimbursement for his "investment costs". Disney's share price plummeted to less than $50. per share. j
From the point of view of a small shareholder, payoffs are the company's money that was paid to the raider by the company's administration so that everything remains the same as it was before the start of the "raid". In this story, someone was left in the cold, but who exactly? Should Walt Disney Productions executives be condemned for spending shareholder money to keep their positions of command? Or should they be congratulated for having maintained a productive organization despite the shameless machinations of greedy financiers? Anyone who believes that the price of a company's stock gives the best indication of its value (as most economists and financiers believe) will consider that the management of Walt Disney Productions, by their actions, reduced the value of the company, as evidenced by the fall in the share price after the payment of the ransom. Those who distrust market valuations, believing them too vulnerable to various manipulations, may conclude that the market valuation of this company has been underestimated all the time and that its management has actually acted in the interests of permanent shareholders. Data on the accuracy of stock prices as valuations of firms is controversial, and the debate continues.
Voluntary restructuring. The success of a wave of hostile takeovers in the 80s. and the resulting rise in stock prices have convinced many executives that the raiders' organizational strategies are a narrower definition of goals, more intensive use borrowed capital and greater use of incentive wages have indeed contributed to the increase in value. Some firms have undertaken voluntary restructuring programs designed to capture the benefits of LBOs while avoiding the costs associated with them. the participation of managers of operational units in the income received by their units. In effect, corporate headquarters were becoming creditors to divisions, and divisions were becoming more leveraged, even though the firm as a whole maintained a more traditional debt-to-equity ratio that allowed it to weather economic downturns without cutting long-term investment too sharply. .
Target buyout. In a target buyout, the target corporation makes a direct tender offer to an outside group or individual investor who owns a large block of its common stock and poses a potential threat to the corporation as its buyer. The buyback of this package is accompanied by the payment by the corporation - the purpose of a significant premium over the current market value of its ordinary shares. With the help of this method of protection, the corporation - the goal, having bought out a large package, gets rid of the buyer. Naturally, the only reason why the acquiring corporation may 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 probability that the tender offer for the target buyout will be successful.
Stop agreement (non-intervention agreement). It is a contract concluded between the management of the corporation - the target and a major shareholder, which for a certain number of years limits the corporation - the target in owning a controlling stake in ordinary voting shares. Quite often, the target corporation accompanies the signing of a stop agreement with the target buyout of a part of the package owned by the purchaser corporation. In this case, the protection is called "green blackmail". This is one of the most effective methods protection and at the same time a method that has the most detrimental consequences for the welfare of shareholders of the corporation - the goal - this reduction in the current value of shares can be 10--15%.
Litigation. This is one of the most popular protection methods. More than a third of all bids made during the period 1962-1980 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 can delay the acquiring corporation (litigation, hearings, case reviews, etc.) and at the same time significantly increase the cost of the merger (the acquiring corporation is more likely to agree to increase the tender offer than to bear huge legal and transaction costs) .
Asset restructuring. This is the most stringent method of protection in relation to the corporation-buyer. It consists in the division of assets into parts and the partial withdrawal of 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 an attempted hard takeover;
- 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 buy back their ordinary shares circulating on open market or held by large, but "unreliable" shareholders.
reincorporation. The method of protection by reincorporation consists in reissuing the constituent documents of the corporation - the target to another state (region) in which there are more severe antitrust laws than in the one in which it is registered in this moment. Theoretically, such protection can significantly complicate the takeover of a reincorporated company, but in practice, reissuing documents is an extremely lengthy process and the corporation - the target, most likely, will simply have time to absorb before it completes such protection.
Buyout by debt financing. Among the corporate control market transactions, there is a whole family of transactions that turn an open company into a closed one. In practice, most of these transactions involve debt buyouts, managed debt buyouts and debt recapitalizations. Debt buyouts and debt recapitalizations can be used effectively by company management as a defense against hostile takeovers. With the help of these transactions, the corporation's management gets the opportunity to significantly reduce the number of shares in circulation available for redemption by the aggressor, and at the same time increase their own stake. Debt-financed buyouts are most often amicable and negotiated, although there are exceptions.
If a debt-financed buyout is used as a defense against a hostile takeover or the potential threat of a hostile takeover, then most likely the buyout will not be a divisional buyout—the corporation will be bought out as a whole. At the same time, the initiator of the buyout will no longer be an investment bank, but the management of the corporation being bought out. A debt financing buyout is a financial transaction that is carried out in four stages:
- 1) creation of a new company, on whose behalf all ordinary voting shares of the existing company (or one of its subdivisions) circulating on the open stock market are bought;
- 2) attracting resources to finance the buyout (obtaining loans from large financial institutions, etc.);
- 3) redemption of all securities of the company;
- 4) distribution of shares of the repurchased company between the initiator of the repurchase and creditors.
Redemption of securities. The repurchase of the securities of the target company can be carried out by means of a tender offer and a merger. The first and most obvious way to buy back shares is to make a tender offer directly to the shareholders of the target company.
A tender offer for a ransom is made and held on behalf of the company-invader, and each shareholder of the company-object is free to decide whether or not to accept the conditions of the offer made. The tender offer does not have to be "all or nothing". The capturing company can make a tender offer to buy out a controlling stake, and after its acquisition, activate the negotiation process regarding the fate of the remaining shares. In the second option, the company-capturer from the very beginning seeks to transfer the buyback of shares to a negotiation basis that is friendly to the management of the company being bought out. Naturally, this method is most often used in managerial debt financing buyouts. The merger agreement (which spells out all the terms of the share buyback, transfer of assets, etc.), agreed by the management of the two companies, goes through a standard two-step procedure for approval by the shareholders' meeting and the board of directors of the company of the object.
Buyout financing. Most of the financial resources needed to pay for the share buyback of the target company are raised by the invading company through the issuance of junk bonds. The rest (rarely exceeding 10% of the required funds) is provided by banks in the form of revolving loans or loans with maturities of 10 to 12 years. Loans are most often collateralized by the assets of the company being bought out. In addition, the financial institutions sponsoring the deal quite often get involved themselves and receive a part of the shares of the company being bought out.
Debt recapitalization. An important extension of buyouts to debt financing is debt recapitalization, sometimes referred to as cash buybacks. Debt recapitalization, like a debt-financed buyout, changes the ownership structure of a company and significantly increases its leverage ratio. Unfortunately, it seems absolutely impossible to give a clear definition of debt recapitalization. Instead, all possible options for its implementation will be considered, from which its essence will automatically follow. Debt recapitalization can be done through: share buyback, merger, share swap, or reclassification.
Recapitalization by share repurchase. In this scenario, a corporation (in the form of a public company) announces a large dividend payment on its voting shares of common stock. The company receives funds for the payment of dividends from the issue and debt securities (most often junk bonds). Debt recapitalization through share buybacks is very popular among corporations whose management owns large and blocks of ordinary 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 directed to the expansion of their packages of ordinary voting shares of the company. Managers can announce a tender offer to buy a certain number of shares on the open stock market and apply with such an offer directly to their shareholders. There is another option for recapitalization by buying back shares. Dividends are paid in cash only to outsider shareholders (in this case, an outsider shareholder is a shareholder who has nothing to do with the management of the company), while insider shareholders receive equivalent dividends in the form of ordinary shares.
Merger recapitalization. Merger recapitalization is the closest relative of a debt financing buyout and is as follows. At the suggestion of a group of shareholders (as a rule, led by the management of the target company), a new capturing company is created, on the balance sheet of which there are no assets. The newly created company merges (not in the sense of consolidation, but in the sense of acquisition) with an existing entity company. As a result, the "surviving" company is the company-invader. The whole point is contained in the merger agreement, which stipulates that each share of the target company will be exchanged for a share of the occupant company plus cash or a combination of Money and bonds. The agreement further states that each share of the invading 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 company-object exchanges its shares for the shares of the occupant company.
Recapitalization by share swap. Debt recapitalization can be carried out not only with the help of a lump sum payment of large dividends on the company's ordinary shares, but also with the help of an exchange offer. In this case, the corporation, using various combinations of cash, junk bonds and preferred shares, can exchange them for ordinary voting shares held by shareholders. The fundamental difference between a debt-financed buyout and a debt recapitalization is who will control the company's shares after the transaction. In a debt-financed buyout, the shareholders of the capturing corporation will control absolutely all the shares of the object corporation they have acquired, and the former shareholders of the object corporation (with the exception of its management) will have nothing to do with it. If the facility's corporation for one reason or another decides to undertake a debt recapitalization, then all of its shareholders will remain its owners, and will not be removed, as would happen in a debt-financed buyout. In addition, in a debt buyout, the target corporation becomes a closed 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. Conducting a hostile takeover by a Russian company can most often be motivated by the desire of its current management to expropriate the free cash flows generated by the company, or by the desire to expropriate the free cash flows belonging to the target corporation. There is no doubt that such acquisitions, which destroy the cost of investment projects, should be limited as much as possible.
However, the specifics of Russian mergers and acquisitions is that they practically do not affect the organized stock market and the market price of shares in the secondary market is not significant. Several of the largest Russian blue chips listed on the stock exchanges and RTS with a relatively liquid market, in least degree may become the object of absorption, even if their market value is significantly underestimated compared to the 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 hard, 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 certain problem during mergers of two public companies (for example, according to analysts, it is the extreme influence of the managers of Deutsche Bank and Dresdner Bank that blocks all attempts to enlarge the banking capital of Germany), then for the Russian owner, who is also a manager, a merger with a larger competitor is often perceived as a loss to the competitor. It is possible to get around such problems only with a clear understanding of the roles and tasks of partners in the merger. Examples of such an understanding are extremely rare, this is, perhaps, the formation of the Progress-Garant group, created by merging a 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 "hopeless" enterprises today 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 it was profitable for the owner who bought the enterprise at a price much lower than its real value not to create added value, but simply to plunder 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) in mergers and acquisitions.
Mergers and acquisitions as one of the forms of reorganization of a legal entity is a normal and clearly regulated process throughout the world, but, unfortunately, in Russia this process has acquired a pronounced criminal and predatory connotation.
The action, in fact, is the same as "the key to the apartment where the money is." It often turns out that the corporate “apartment” is rich, and its doors are flimsy, and the key itself, if you want, you can get your hands on without much difficulty: the owners are gullible people and do not think that they can be robbed. Thus begins the hunt for someone else's property, the ultimate goal of which is to establish control over someone else's business. In domestic business practice, such actions are called "capture of the enterprise" or "hostile takeover". Hostile takeover- this is the taking of one company by another under its control, its management with the acquisition of absolute or partial ownership of it, and this taking is carried out either without the consent of the management of the absorbed company, or even in secret from the managers.
The question of the effectiveness and expediency of using hostile takeovers as a way of reorganizing corporate capital is, in general, quite debatable. On the one hand, hostile takeovers are a serious tool for optimizing corporate governance and an incentive for the most effective use resources. But on the other hand, such actions are often used for speculative purposes and are destructive for the economy of enterprises and, of course, for the country as a whole.
Within the framework of this work, an attempt was made to consider various methods of protection against forceful seizures of enterprises, hostile takeovers. The development of effective measures to minimize the risk of financial and property losses from the actions of unfriendly companies is largely based on the creation of practical obstacles in the way of the aggressor. As you know, guessing and fortune-telling about whether something will happen or not, in the matter of protecting a money-bearing asset, can lead to complete business losses. There are many examples of this, it is no coincidence that there are special divisions in FIGs that develop options for a hostile takeover of competing companies.
At any level (international, regional, city) there are people who are ready to pick up everything that lies badly. For this purpose, specialized companies are often created, receiving an order to take over a particular enterprise or asset. Moreover, as a rule, such companies work for a percentage of the absorbed asset, i.e. their financial interest in the positive outcome of the takeover is evident.
Of course, it is necessary to defend against such aggressors. However, agreeing with such a need, many owners of enterprises consider it sufficient to bring their block of shares to 75% or appoint "their" general director. And then they stop paying attention to protecting their assets. And only with obvious signs of an unfriendly takeover or merger, they remember the need to build a comprehensive defense. But to what extent will it become complex and, consequently, effective? Acquisition practice and common sense show that individual measures are less effective than timely developed comprehensive strategic and tactical defense.
1. The main methods of hostile takeover
One of the basics of the tactics of military operations is the principle "Know the weapon of the enemy, be able to resist it and use it in your own interests." Modern business in the face of fierce competition is the same war, only waged by other means. Therefore, in order to effectively build a system of protection against an unfriendly attack, it is first necessary to determine those possible ways takeovers that can be applied to the enterprise.
In the West, there are hostile takeover tactics such as bear hugs and tender offers to buy shares.
Bear hug. Sending messages to the top management of the target companies about the upcoming takeover, demanding that they take a quick decision on this proposal. In case of refusal, the acquiring company goes directly to the shareholders of this company behind the back of its management with a tender offer.
Tender offer. The management of the target company may advise shareholders to accept the offer or resist the intentions of the potential buyer. The tender offer can be implemented in various ways.
Two-tier offer - the price at which the acquiring company promises to buy the shares of the acquiring company is differentiated. First, a block of shares of a higher level (for example, 51%) is bought at a higher price, which is announced simultaneously with the tender offers. The rest of the shares are then bought at a lower price.
Partial Offer – The acquiring company announces the maximum number of shares it intends to acquire but does not disclose its plans for the rest of the shares.
Both of these bidding methods aim to reduce the total acquisition price of the target company's shares and at the same time encourage the shareholders of the target company to sell their shares faster by promising a higher price when buying a starter shareholding.
The most common hostile takeover methods in modern Russia steel: consolidation (purchase) of small blocks of shares; deliberate bringing to bankruptcy; targeted reduction in the value of the enterprise and the acquisition of its assets; contesting property rights to strategically important assets (industrial and technological complex, subsoil use rights, etc.); "purchase" of enterprise managers.
As can be seen from the above list, these methods are quite diverse. In this study, the task is not to tell about all of them, and even more so to oppose adequate protection options to each method. The paper attempts to give an overview of the systematic approach to enterprise protection.
2. Preliminary protective measures
Strategic methods of protection - the methods provided for by the enterprise strategy (i.e., a long-term business development plan), their application causes serious organizational changes in the business management system. These methods are used in the systematic organization of business protection, as a rule, when the attack has not yet begun and there is no real visible threat of takeover.
Strategic methods of protection mainly include organizational and managerial measures: building a corporate structure, forming a system of business economic security, organizing an effective motivation system for top managers, etc.
1. Actions to change the nature of management.
Successful protection against hostile takeovers and mergers is based on confidence in the clear and coordinated work of society as a whole, its governing bodies and managers as the main driving force that overcomes any encroachment.
The legal basis for the protection of society should be scrupulously developed internal documents (Charter, Regulations on governing bodies, Agreement with management company etc.) corresponding to the chosen protection strategy. Often, these documents are treated as an unpleasant formality, repeating the imperative norms of corporate law in them. Business owners often do not take into account that in the event of a threat of a hostile takeover, they may simply not have enough time to eliminate contradictions in documents and make the additions necessary for organizing protection. The internal documents of the company should clearly define the procedure for making strategic decisions about the fate of the business, the procedure for exiting the business, the procedure for determining the price of the assigned share in the business.
a) Since the board of directors is a key governing body in most companies, the support of board members is important for the aggressor. According to the law, members of the board of directors are elected at the annual meeting of shareholders, which means that a major shareholder may well make his candidacies. Therefore, it is proposed to divide the board of directors into three groups. Thus, each year only one group can be re-elected, as a result of which the acquiring company cannot immediately take control of the target company, i.e. the capture process is delayed. However, in Russia this method is poorly applicable, because. according to Art. 66 of the Federal Law of the Russian Federation "On Joint-Stock Companies", the election of the board of directors must take place once a year for a period of one year, in addition, any member of the board of directors can be re-elected ahead of time by decision of the meeting of shareholders.
b) With an unfriendly takeover, most often attempts to change the management bodies are carried out even before gaining control over even half of the shares of the company. Current joint stock law provides for alternatives regarding the body competent to elect the CEO or chairman of the board of directors. If the right to elect them is attributed to the competence general meeting, then it will not be enough for the aggressor to obtain operational control to enlist the support of half of the members of the board of directors, it is required to convene a general meeting of shareholders. And if we additionally provide for the election of the board of directors by cumulative voting, then the term for holding an extraordinary general meeting can be postponed from 40 days to 70. In terms of protection, an additional month may not be superfluous at all.
Example:
During the takeover of one company, the aggressor managed to negotiate with several members of its board of directors, offering them guarantees for the extension of their powers under the new owner. However, the aggressor could not remove the general director and seize the operational management of the company, since in its charter the election of the general director and members of the board of directors was referred to the competence of the general meeting. Of course, at the request of members of the board of directors, an extraordinary general meeting of shareholders was convened. But the charter provided for the election of the board of directors by cumulative voting, and the period for holding an extraordinary general meeting was automatically moved from 40 days to 70. In the issue of protection, an additional month played a decisive role. During this time, the company has taken a number of actions, including an exemplary purchase of its shares at an inflated price, which actually blocked the subsequent increase in the aggressor's shareholding, work was carried out with shareholders. After an extraordinary general meeting, which did not re-elect unfriendly members of the board of directors and confirmed the powers of the acting general director, the company's stake was bought back from the aggressor at an acceptable price.
c) The Articles of Association may stipulate in advance a simplified procedure for convening the board of directors. In the event of an attack on an object, this allows you to gain time and increase flexibility in control.
d) The articles of association may include special requirements for the election of members of the board of directors, for example, on work experience or education. Thus, when appointing a general director in a number of regions of energy companies, the main requirement was a ten-year experience in the energy sector.
e) One of the most common methods of hostile takeover is the purchase of accounts payable. And in this regard, the eternal question of the main shareholder of the company will be - does the management act in the interests of the company and does it make decisions on concluding transactions with due diligence?
The current legislation allows shareholders to legitimately restrict the capabilities of individual officials, in particular the CEO, in order to avoid accidentally or deliberately creating an unfavorable situation in society.
First of all, this is a direct indication in the Charter of additional restrictions on transactions by their size (the option of restrictions by types of transactions, by counterparties is not excluded). The sole executive body under the current legislation independently concludes transactions up to 25% of the book value of the company's assets. For the purpose of establishing more control over its activities, you can limit it to 5-10%, etc. This is especially expedient with a significant balance sheet value of assets or in the presence of several technologically interconnected, but legally separate industries.
f) The competence of the general director in the implementation of transactions can be limited through a change in the structure of management bodies. In companies where the presence of a board of directors is not mandatory, it is possible to introduce this body and transfer part of its powers to it. In the middle and large companies the powers of the executive body are redistributed between the general director and the board. The creation of a board of directors and a board of directors also makes it possible to use such a tactical method of protection as the bureaucratization of the decision-making procedure in society.
g) Provide for a supermajority condition, which implies the consent of the absolute majority of shareholders to carry out particularly important decisions. A typical example of a super-majority would be a requirement to receive 75% of the votes in amendments to the bylaws, reorganizations and major transactions. This requirement stipulated in Art. 48 and 49 of the Federal Law of the Russian Federation "On Joint Stock Companies". In other cases, the consent of up to 95% of the voters is required for the adoption of individual decisions. The reverse side of this technology is a decrease in flexibility in the approval of complex management decisions.
h) Monitoring the current state. When buying up the most interesting assets, many aggressors act according to the principle: “Why buy an enterprise if you can buy its management?” Indeed, if an effective system of independent monitoring of its financial and economic activities (in other words, a system of business economic security) has not been built at an enterprise, it will not be so difficult for an aggressor to implement this principle.
The monitoring system is traditionally implemented through the creation of the current monitoring service itself (economic security service) and the control and audit service, whose tasks include conducting comprehensive audits of compliance with the management procedures established at the enterprise.
i) The procedural issues of making decisions that are strategically important for society should be clearly regulated in the regulations on the governing bodies and such an extremely important for any commercial organization document as the Regulations on the procedure for concluding contracts. The correct alignment of the management process of concluding an agreement and its clear legal regulation allows in most cases to avoid the threat of actions by the management and employees of the company in the interests of the aggressor (accept the terms of the transaction that are enslaving for society, provide an easy opportunity for the aggressor to buy up the obligations of the company, etc.).
j) Selecting a registrar is a separate security issue. Societies do not always transfer their register to a professional registrar, when this is not directly required by law. But when state bodies come to an enterprise with a custom “check” (be it the prosecutor’s office or the Ministry of Internal Affairs with their new powers, it doesn’t matter) and, based on an extended list of documents that they have the right to request, demand that a register of shareholders be submitted, one has to come up with formal grounds for refusal. When the register of a joint-stock company is transferred for maintenance to a well-verified specialized registrar, one can fully expect that during the verification he will refer to an exhaustive list of grounds for disclosing such information.
We must also not forget that the use of a specialized registrar for the main owner of a joint-stock company is additional way regulation of transactions with the most liquid asset of the company - its shares and a way to reasonably narrow the uncontrolled powers of top management.
When choosing a registrar, a cautious owner will definitely check whether it is a well-known company on the securities market with a good reputation; whether the registrar will provide an opportunity to obtain operational information on the movement of the company's shares; whether it is independent of potentially hostile structures.
k) In this regard, it is appropriate to talk about the adoption of a charter that protects against takeover. A charter protecting against takeovers is a collective term denoting a whole range of measures that exclude the possibility of an aggressor using common mistakes and provide additional features procedural protection (for example, the procedure for carrying out transactions with shares of the company, the procedure for selecting and terminating the powers of persons acting on behalf of the company, the procedure for amending the charter) are clearly prescribed.
2. Stock protection.
Fund protection consists in carrying out operations with securities aimed at limiting the turnover of shares and counteracting the accumulation of significant blocks of shares by the initiators of the takeover.
Securities transactions may include both the diversification of rights in different groups of securities owned by shareholders, and the possibility of changing the rights to securities in case of adverse events.
a) Double capitalization method implies the presence of two or more groups of shares with a different number of votes per share. Shareholders in control artificially inflate the number of votes by issuing more shares with more votes per share. In order to avoid prosecutions for violation of shareholders' rights during the additional issue, new shares are distributed among all shareholders up to a certain period, as well as the possibility of exchanging new shares for old ones. As a rule, newly issued shares have lower dividend payout rates and quotes, so they can be easily exchanged by shareholders.
An effective stock protection is a predetermined purchase price of shares in the case of purchases of large blocks. Of course, the price is set for more high level than the market rate. So did the Pecheney Co.
b) Another form of stock protection is transfer of shares in trust management to related companies. Owning companies (and there are two types - owners of blocks of shares and intangible assets and owners of capital-intensive and most liquid property) do not themselves conduct any financial and economic activities, which allows minimizing the risk of their capture through the concentration of accounts payable or by imposing responsibility for activities of the production business units of the holding. They only determine the key appointments in the management company and exercise control over the use of the holding's main assets.
The direct management of the holding's activities is carried out by a specially created management company, which exercises its power in relation to production business units and service companies through an agreement between the management company and the subsidiary. This agreement defines the delimitation of powers and responsibilities between the management company and the subsidiary, defines the mechanism for coordinating and making decisions on key aspects of activity. Depending on the distribution of powers that have taken place, the degree of centralization / decentralization of management in the holding is determined. Thus, the concentration of assets and their transfer to a safe place is carried out. Cross co-ownership can also create additional barriers to the invader's path.
c) Enough effective measure is restriction of circulation of shares or division of markets for their circulation. This measure is not very popular in the West, since the restriction of the circulation of shares has a negative effect on share prices. In our country, Gazprom resorts to a similar technique, limiting the volume of securities traded on one trading floor. Technically, this is done by setting quotas for the size of the block of shares acquired within a certain period of time.
d) In addition to time and quantitative restrictions on the circulation of securities, as part of the construction of preliminary protection, the company may conduct change in legal form. Open joint-stock companies can be transformed into closed or even limited liability companies. In the case of circulation of the company's shares on the stock market, they are redeemed at market value, and then the organizational structure is changed. legal form. Surgutneftegaz recently resorted to a similar practice in Russia. It should be noted, however, that in this case the company loses a significant part of its market value, therefore, if the company's resources are limited, its production and financial performance may suffer.
3. Other organizational and specific activities.
a) Poison pill method not new to Russian practice for a long time. The preparation of "poison pills" involves taking measures that reduce the company's attractiveness to potential aggressors or make the takeover procedures as difficult as possible.
"Poison pills" can be organized in the following forms:
Issue of rights to securities;
Issue of preferred shares;
Issue of debt securities with a put option.
In the first case, protective measures are understood as the issuance of rights to securities that are distributed within the management team and, in the event of a takeover, will allow the defenders to make an additional issue and subsequent distribution of shares among loyal shareholders.
In the second case, a decision is made to pay dividends to shareholders in the form of preferred shares. It is stipulated in advance that in case of initiation of a hostile takeover or change of ownership as a result of such a takeover, the company undertakes to buy back these shares at a fixed price (above the market price).
In the case of issuing debt securities, the company undertakes to buy back these securities at a predetermined value in the event of a successful takeover. Typically, this is a severe blow to the solvency of the acquiring company, even as it resorts to heavy borrowing to carry out a hostile takeover. The advantage of "poison pills" as a way to protect against takeovers also lies in the possibility of changing or canceling these measures with the full consent of the company's management. Naturally, this is possible when the aggression is stopped or the hostile takeover is changed to a friendly one.
b) The basis of any team management system is the correct motivation of managers and leading specialists. It is they who make up the core of the company and largely determine the success of this business. Therefore, one of the effective mechanisms for protecting business is the creation of a motivation system that orients the company's management towards the growth of the value and efficiency of the business. In the Western business community, partnership schemes for top managers and key business professionals are widespread. We are talking about signing contracts with the company's management. This includes how creation of "golden parachutes", and the conclusion of direct labor doctors, providing care in the event of a hostile takeover. Under the "golden parachutes" we mean significant compensation to the company's management in the event of a takeover and change of the management team. In the absence of hostile action, this measure can be automatically extended for a year or more before the takeover is initiated. The amount of compensation is unique in each specific case, but, as a rule, it amounts to several annual salaries of an employee (in modern Russia, these mechanisms are almost never used, which, in our opinion, indicates an insufficient development of a corporate governance culture rather than a fundamental impossibility of using these schemes on domestic soil).
However, often a hostile takeover is aimed at maintaining the efficiency of the business at the current level. This is not possible without saving frames. Therefore, within the framework of preliminary protection, the target company stipulates the possibility of the departure of key employees in the event of its hostile takeover.
in) Building strategic partnerships and alliances(strategic stakes) is also one of the protection measures. Formally, participation in an alliance can be strengthened by the exchange of shares of participants, but simply having a strong partner who is ready to help in initiating a hostile takeover plays a big role.
d) Of the rather simple, but, nevertheless, reliable methods of preliminary protection, one can note competent organization register maintenance. Most often, depositories become the sources of information about the exact ownership structure of the target. Therefore, the company must be aware of the risks in case of cost savings on the registrar.
3. Protection after absorption initiation
Let's say that despite all the precautionary measures taken, the company was attacked by an outside company. This means that the time comes for protective measures after the initiation of the takeover (tactical methods of protection). We note right away that, compared with preliminary protection, these measures are much more capital-intensive.
1. Very common in world practice litigation with absorption initiators. It is expressed in lawsuits challenging the election of new members of the board of directors; arrests of blocks of shares bought up by the invader; litigation of significant decisions, such as an additional issue or reorganization of assets. It is possible to involve the initiator of the takeover (as well as the target company) in legal proceedings at any stage of the takeover. This tactic allows you to buy time when preparing other defensive moves.
2. On early stages absorption is possible redemption of its shares the company under attack. This is in line with the asset concentration guidelines outlined in the Preliminary Safeguard Actions. Another thing is that, unlike preliminary measures, the purchase will be carried out not only directly on the stock market, but also from agents involved in asset speculation. Accordingly, redemption costs can be quite significant. An alternative to own buyout can be a tender counteroffer, when an offer is made to the aggressor to buy out a controlling stake at a price that is significantly higher than the market price.
As the number of shares in free float decreases, the management of the object of attack may begin to dilute the blocks of shares owned by the invader, for example, by conducting an additional issue or issuing dividends to management and loyal shareholders in the form of blocks of new shares. Also, a decision on the double capitalization of issued shares can be carried out through the board of directors.
3. One of the most radical methods of protection is attack on the aggressor or the so-called "Pacman defense". This method can lead to a slowdown in hostile takeover or its halt due to the redistribution of the initiator's resources for its own defense. Also, the shares of the takeover initiator can be exchanged for their own. The adoption of this measure of protection must be well prepared, since it is very expensive and not always effective due to the lack of accurate information about the ownership structure of the aggressor.
4. An important part of the defense organization is its financing. Often, the company simply does not have its own funds for protection. In this case, it is necessary to involve third party funding. In Western practice, this technique is called "attracting the" white knight ". An ally can be a financial group associated with the object by economic and business relations, or a third-party bank. “The involvement of the “white knight” can be carried out with or without the transfer of control over the object. If the former owner retains control, the ally company has the right to count on certain benefits and advantages.
5. Another protective measure available at any stage of the takeover is asset restructuring in order to increase their security. Naturally, it is better to take these actions long before the start of a hostile takeover, since it is highly likely that, carried out in the course of active actions, they will be challenged by opponents.
The last way to protect in case of continuation of the acquisition procedure is the deterioration of financial performance or asset structure. This method is a series of actions - from the withdrawal of the most significant assets to individual companies to a full range of measures for deliberate bankruptcy (the so-called "scorched earth" tactics).
The withdrawal of assets can be carried out both for the purpose of selling them to the initiator to terminate the takeover procedure, and for the purpose of improving their protection against takeover. In the case of a more radical form of protection, the next step after the restructuring is the withdrawal of funds in the form of dividends, investments, etc. Another form of deterioration in the financial picture is the attraction of external financing with the subsequent withdrawal of the funds received. Thus, as a result of absorption, the aggressor receives an empty and unattractive shell. On the other hand, such measures in the vast majority of cases do not make a positive contribution to the development of the company and can be challenged in court by the opposing party.
It is worth highlighting several very effective methods of protection against hostile takeovers, which stand apart from the above classification.
"Greenmail"
Repurchase of shares of the target company at a premium to the market price from shareholders. Often, the buyback is made from the acquiring company itself.
"reincorporation"
Re-registration of a company in another region
No action agreement
A voluntary agreement with the shareholder from whom the shares are being redeemed that he will not acquire the shares of the target company for a certain period of time.
Redemption with leverage / Management buyout
Already discussed above, this mechanism is an effective method of protection against hostile takeovers. A company bought out by management is of much less interest to the acquiring company, since it is no longer possible to reach an agreement with shareholders - all shares are concentrated in the hands of top management. In addition, after the management buyout is completed, the target company becomes burdened with excess debt, which makes it less attractive.
Thus, it can be concluded that successful defense is a combination of economic and legal measures. The above methods are far from a complete list of modern mechanisms of absorption and protection against it. It should also be noted that the comparative costs and effectiveness of protective measures were deliberately not given, since it is extremely difficult to determine which of them will be effective without knowing all the conditions of each particular case. It can be summarized that the protection of the company in any situation is a unique project and requires the maximum concentration of enterprise resources.
The approach proposed in this paper to the organization of complex protection against hostile takeovers makes it possible to combine the most common methods of protection into a system. However, when adjusting the business strategy, it is also necessary to take into account the issues of its effective protection.
To service takeovers, as mentioned above, infrastructures are being created, consisting of several firms specializing in developing schemes for the forcible takeover of companies and, presumably, in bribing judges and officials. All this harms the state, makes Russia unattractive to many strategic investors, discredits the country's judicial system and ongoing market reforms. Therefore, it is necessary and necessary to fight hostile takeovers. And when forming a protection system, one should use the old, like the world, rule "The one who is warned is armed."
4. Ensuring the interests of shareholders in the redistribution of corporate control
So, we have established that one of the ways to establish shareholder control is a takeover, i.e. acquisition of a controlling stake. The objectives of the legislative regulation of the takeover are to ensure the rights of shareholders when consolidating a block of shares of a certain amount from a person or persons who, as a result of such consolidation, acquire leverage (up to full control) on the decisions of the general meeting of shareholders, which in turn may affect the market value of shares and dividend policy of the company.
It is necessary to legislate the following main mechanisms for ensuring the rights of shareholders and investors with the possibility of change and change of control:
· establishing a procedure for timely and complete informing shareholders and investors about the intentions and actions of the acquirer (potential acquirer);
· Establishing a complicated procedure for making decisions on protective measures in case of takeover in order to provide shareholders with the right to choose a more efficient owner and prevent the withdrawal of capital by management;
· creation of a mechanism for exercising the right of minority shareholders to sell shares at a fair price in the event of a change in material conditions compared to those on the basis of which the shareholder made an investment decision;
· consolidation of mechanisms that ensure the balance of interests of the largest corporate owner (90% or 95% of the authorized capital) and minority shareholders in the implementation of the so-called "crowding out", in which the shares of minority shareholders are redeemed at a fair price.
- Monitoring the current state
- Managers Motivation
Why is it always necessary to defend against an unfriendly attack, and not when it has already begun
The development of effective measures to minimize the risk of financial and property losses from the actions of unfriendly companies is largely based on the creation of practical obstacles in the way of the aggressor.
As you know, guessing and fortune-telling about whether something will happen or not, in the matter of protecting a money-bearing asset, can lead to a complete loss of business. There are many examples of this, it is no coincidence that there are special divisions in FIGs that develop options for a hostile takeover of competing companies.
Perhaps someone will say that these are "games of the powerful." However, it is not. At any level (international, regional, city) there are people ready to pick up everything that lies badly. For this purpose, specialized companies are often created, receiving an order to take over a particular enterprise or asset. Moreover, as a rule, such companies work for a percentage of the absorbed asset, i.e. their financial interest in the positive outcome of the takeover is obvious.
Of course, it is necessary to defend against such aggressors. However, agreeing with this need, many owners of enterprises consider it sufficient to bring their block of shares to 75% or appoint "their" general director. And then they stop paying attention to protecting their assets. And only with obvious signs of an unfriendly takeover or merger, they remember the need to build a comprehensive defense. But to what extent will it become complex and, consequently, effective? Acquisition practice and common sense show that individual measures are less effective than timely developed comprehensive strategic and tactical defense.
The main methods of hostile takeover
One of the basics of the tactics of military operations is the principle "Know the weapon of the enemy, be able to resist it and use it in your own interests."
Modern business in the face of fierce competition is the same war, only waged by other means. Therefore, in order to effectively build a system of protection against hostile attacks, first of all, it is necessary to determine those possible acquisition methods that can be applied to the enterprise.
The most common methods of hostile takeover in modern Russia are:
- Consolidation (purchase) of small blocks of shares
- Deliberate bankruptcy
- Purposeful reduction in the value of the enterprise and the acquisition of its assets
- Challenging ownership of strategically important assets (industrial and technological complex, subsoil use rights, etc.)
- "Purchase" of enterprise managers
As can be seen from the above list, these methods are quite diverse, and any reader who is somewhat experienced in Russian business will surely immediately recall familiar examples of the use of these absorption methods. Therefore, we do not set ourselves the task of telling about all of them, and even more so, to oppose adequate protection options to each method. We will try to give an overview of the systematic approach to enterprise protection. The systematic approach involves the systematic use of a combination of many methods of defense - placing on the enemy's path the optimal (in terms of the ratio of defense effectiveness / defense costs) number of "slingshots", their use depending on the intentions and actions of potential and real aggressors.
Strategic and tactical defenses
Strategic methods of protection - methods provided for by the company's strategy (i.e., a long-term business development plan), their use causes serious organizational changes in the business management system (for example, the transition to a holding structure). These methods are used in the systematic organization of business protection, as a rule, when the attack has not yet begun and there is no real visible threat of takeover.
Nevertheless, the majority of active and dynamically developing Russian business structures, when forming their development strategy, must take into account the factor of business protection.
Strategic methods of protection include, mainly, organizational and managerial measures - building a corporate structure (the structure of organizations that are part of a holding, a group of companies), forming a system of business economic security, organizing an effective system of motivation for top managers, etc.
Tactical methods of defense are used when the attack has already begun, or when the threat of attack is already obvious. They do not require major strategic and organizational innovations. As a rule, these are legal actions.
Basic strategic defenses
As already noted, the use of strategic methods of protection requires serious organizational and managerial innovations. What are these changes in the traditional structure of medium-sized businesses? It:
- Business integration (vertical or horizontal)
- Defense through attack
- Diversification (distribution) of property and financial risks in the holding structure
The use of the first two strategic methods of protection is typical for enterprises - industry leaders. This and the spread of its power up and down the production chain. Buying up and directly capturing smaller competitors, building a production and marketing network in the regions is also one of the effective methods of protection at the strategy level.
Let's leave the market leaders and their aggressive methods of protection alone and tell you more about another common way to protect large and medium-sized businesses - diversification of property and, to some extent, financial risks. This method is based on the use of a simple worldly principle: "do not put all your eggs in one basket." In relation to the production, technological and financial complex of an enterprise, this means - do not concentrate all assets in one organization, if you attack it, you can lose everything at once.
Let's take an example of how the most "advanced" business structures operate in this direction. The holding scheme depicted in the figure is a kind of collective image of many really operating business structures. Let's see how they are organized.
Real business owners, as a rule, do not advertise their predominant participation in the authorized capital of production business units directly. They operate through specially created companies - owners. Often these companies are registered in offshore zones, since the legal status and procedure for registering an offshore company in some jurisdictions allows not disclosing information about the composition of shareholders (members) of this organization. There are also exotic examples registration in Russia for nominees of the owner company with the same purpose - to keep secret information about the real owners of the business.
Owner companies (and they are of two types - owners of blocks of shares and intangible assets, and owners of capital-intensive and most liquid property) do not themselves conduct any financial and economic activities, which allows minimizing the risk of their capture through the concentration of accounts payable or by imposing liability for the activities of the production business units of the holding. They only determine the key appointments in the management company and exercise control over the use of the holding's main assets.
The direct management of the holding's activities is carried out by a specially created management company, which exercises its power in relation to production business units and service companies through an agreement between the management company and the subsidiary. This agreement defines the delimitation of powers and responsibilities between the management company and the subsidiary, defines the mechanism for coordinating and making decisions on key aspects of activity. Depending on the distribution of powers that have taken place, the degree of centralization / decentralization of management in the holding is determined.
At one time (in the mid-1990s), during the period of the most active corporate construction, a scheme of over-concentration of powers in the holding's management company was widespread in the Russian raw material industries. This scheme was implemented through the transfer of powers of executive bodies subsidiary company management company (Article 103 of the Civil Code, Article 69 of the Federal Law "On Joint Stock Companies"). Thus, all legally significant actions on behalf of the subsidiary were carried out directly by the management company. On the one hand, this made it possible to concentrate power over business in one hand, on the other hand, it made it difficult to manage territorially remote business units. As the system of corporate management of raw materials holdings was being built, the oil and metallurgical "wars" subsided, most of the integrated structures switched to a less centralized management model, although there are still cases of applying the scheme of over-centralization of powers.
In addition to the actual production business units, the holding structure includes service companies serving commercial and auxiliary functions. In some industries that are characterized by a significant movement of personnel (for example, in construction), it has recently become customary to create specialized personnel companies that, from the point of view of the risk distribution scheme, bear the burden of responsibility for relations with the labor collective, trade unions and regulatory authorities (state labor inspection , immigration services, etc.). In the oil and gas industry last years A popular trend has been the creation of production drilling and well workover service companies, which, again from a protection scheme perspective, allows the distribution of ownership of the most capital-intensive assets.
The use of service companies serving commercial functions (as a rule, sales and supply) allows you to separately control material and financial flows enterprises, to organize a protective buffer in the way of an aggressor carrying out an attack through the concentration of accounts payable.
Let's consider two examples of using a risk sharing scheme in the interests of an average Russian enterprise operating, for example, in the food industry. With protection method 1, the production business unit "Plant" is protected from external counterparties by two buffers - trading house"Snab" and Trading House "Sbyt", which provides necessary protection, and also allows you to flexibly vary the flows financial resources between holding companies. With protection method 2, a production business unit with the conditional name "Operating activities" directly interacts with external counterparties, i.e. is at risk of capture through the concentration of accounts payable, but its most "tasty" assets are isolated in companies - owners that do not conduct current activities.
Tactical defenses. a brief description of
When applying tactical methods of protection, serious strategic and organizational innovations are required. However, for them effective application the ground must be prepared in advance in the form of a system of internal documents of the enterprise that regulate the emergence of rights and the assumption of obligations. When forming such a package of documents, special attention should be paid to the following areas:
- regulation of the formation and activities of governing bodies
- regulation of transactions with shares
- current state monitoring system
Let us dwell in more detail on the most significant aspects of tactical methods of protection against hostile takeovers.
Regulation of the Formation and Activities of Governing Bodies as a Way of Reasonably Restricting the Powers of Governing Bodies
Successful protection against hostile takeovers and mergers is based on confidence in the clear and coordinated work of society as a whole, its governing bodies and managers as the main driving force that overcomes any encroachment. Internal lack of control, vagueness in the delimitation of powers or excessive inertia in decision-making can in themselves lead to negative consequences, and if they are present during the attack of the aggressor, the ship will sink without even having time to fight.
The legal basis for the protection of the company should be scrupulously developed internal documents (the Articles of Association, Regulations on the governing bodies, the Agreement with the Management Company, etc.) corresponding to the chosen protection strategy. Often, these documents are treated as an unpleasant formality, repeating the imperative norms of corporate law in them. Business owners often do not take into account that in the event of a threat of a hostile takeover, they may simply not have enough time to eliminate contradictions in documents and make the additions necessary for organizing protection. Modern Russian business recently "crossed" the ten-year milestone of its development, and history already knows a lot of cases when former friends and partners, having decided to divide the business, enter into such a clinch that they create the most favorable ground for the attack of the aggressor. And mainly why? Because in advance they did not bother to clearly define the procedure for making strategic decisions about the fate of the business, the procedure for exiting the business, the procedure for determining the price of the ceded share in the business.
First of all, you should pay attention to the following key points when developing a package of internal documents of the company. In an unfriendly takeover, the aggressor seeks to gain operational control over the enterprise. For this purpose, a change of governing bodies is being carried out. Most often, attempts to change are carried out even before gaining control over even half of the company's shares. The current joint stock legislation provides for alternatives regarding the body competent to elect the general director or the chairman of the board of directors. If the right to elect them is attributed to the competence of the general meeting, then it will not be enough for the aggressor to obtain operational control to enlist the support of half of the members of the board of directors, it is required to convene a general meeting of shareholders. And if we additionally provide for the election of the board of directors by cumulative voting, then the term for holding an extraordinary general meeting can be postponed from 40 days to 70. In terms of protection, an additional month may not be superfluous at all.
During the takeover of one company, the aggressor managed to negotiate with several members of its board of directors, offering them guarantees for the extension of their powers under the new owner. However, the aggressor could not remove the general director and seize the operational management of the company, since in its charter the election of the general director and members of the board of directors was referred to the competence of the general meeting.
Of course, at the request of members of the board of directors, an extraordinary general meeting of shareholders was convened. But the charter provided for the election of the board of directors by cumulative voting, and the period for holding an extraordinary general meeting was automatically moved from 40 days to 70. In the issue of protection, an additional month played a decisive role. During this time, the company has taken a number of actions, including an exemplary purchase of its shares at an inflated price, which actually blocked the subsequent increase in the aggressor's shareholding, work was carried out with shareholders. After an extraordinary general meeting, which did not re-elect unfriendly members of the board of directors and confirmed the powers of the acting general director, the company's stake was bought back from the aggressor at an acceptable price.
In this regard, it is reasonable to talk about the adoption of a charter that protects against takeovers. A statute that protects against takeovers is a collective term that refers to a whole range of measures that exclude the possibility of an aggressor using common mistakes and provide additional opportunities for procedural protection.
Ways to reasonably limit the competence of the General Director and managers of the company
One of the most common types of hostile takeovers is the purchase of accounts payable. And in this regard, the eternal question of the main shareholder of the company will be - does the management act in the interests of the company and does it make decisions on concluding transactions with due diligence?
The current legislation allows shareholders to legitimately restrict the capabilities of individual officials, in particular the CEO, in order to avoid accidentally or deliberately creating an unfavorable situation in society.
First of all, this is a direct indication in the Charter of additional restrictions on transactions by their size (the option of restrictions by types of transactions, by counterparties is not excluded). The sole executive body under the current legislation independently concludes transactions up to 25% of the book value of the company's assets. In order to establish greater control over its activities, it can be limited to 5-10%, etc. This is especially expedient with a significant balance sheet value of assets or in the presence of several technologically interconnected, but legally separate industries.
The competence of the general director in the implementation of transactions can be limited through a change in the structure of management bodies. In companies where the presence of a board of directors is not mandatory, it is possible to introduce this body and transfer part of its powers to it. In medium and large companies, the powers of the executive body are redistributed between the CEO and the board. The creation of a board of directors and a board of directors also makes it possible to use such a tactical method of protection as the bureaucratization of the decision-making procedure in society. As already mentioned, it is possible to transfer the powers of the general director of the management company.
The procedural issues of making decisions that are strategically important for society should be clearly regulated in the regulations on governing bodies and in such an extremely important document for any commercial organization as the Regulations on the procedure for concluding contracts. The correct alignment of the management process of concluding an agreement and its clear legal regulation allows in most cases to avoid the threat of actions by the management and employees of the company in the interests of the aggressor (accept the terms of the transaction that are enslaving for society, provide an easy opportunity for the aggressor to buy up the obligations of the company, etc.).
Creating additional protection through a reasonable distribution of powers between the company's management bodies, limiting the uncontrolled powers of management, does not allow an unfriendly company to force the company's managers to make a deal or make a decision that does not correspond to the interests of the company. In fairness, it should be said that such restrictions will not be able to fully protect society from the actions of an unfriendly CEO. But even in such an extreme situation, he will not deprive the enterprise of the most significant asset in one hour and will not concentrate significant accounts payable with an unfriendly company.
Stock transactions as a high-risk area
The most popular way to gain control over a joint-stock company is to buy its shares. When building takeover protection through the consolidation of blocks of shares, special attention should be paid to the minimum necessary requirements presented in this regard to the charter and to the registrar of the company.
In the practice of corporate warriors, where conflict resolution goes beyond negotiations and all available funds attacks and defense, very often there are cases of challenging the decisions of the governing bodies on the grounds of non-compliance with the decision-making procedure. Since the options for contesting on such grounds are diverse, it is necessary to impose additional requirements on the charter of the company, in particular, regulate:
- the procedure for notifying shareholders and the Company about the offer of shares for sale (for CJSC);
- the procedure for the acquisition by the Company of unredeemed shares;
- the procedure for making a decision to increase the authorized capital (declared shares);
- the procedure for converting equity securities into shares.
But, having developed and adopted the most protective charter, there is no need to make elementary mistakes. The real owner of the business legally registered the company for another individual. While the business was not large, there were no questions. With the advent of good profits, the official shareholder began to demand more and more sums under the threat of selling the business, to the creation of which he had only an indirect relationship. To the credit of the real owner, he decided to get out of this situation with the help of lawyers. A scheme was developed to create debt from the official shareholder for his personal obligations, and the shareholder transferred the entire block of shares to pay off debts.
A separate issue of protection is the choice of a registrar. Societies do not always transfer their register to a professional registrar, when this is not directly required by law. But when state bodies (be it the prosecutor's office or the Ministry of Internal Affairs with their new powers, it doesn't matter) come to an enterprise with a custom-made "check" and, based on an extended list of documents that they have the right to request, demand that a register of shareholders be submitted, one has to come up with formal grounds for refusal. When the register of a joint-stock company is transferred for maintenance to a well-verified specialized registrar, one can fully expect that during the verification he will refer to an exhaustive list of grounds for disclosing such information.
We should also not forget that the use of a specialized registrar for the main owner of a joint-stock company is an additional way to regulate transactions with the company's most liquid asset - its shares and a way to reasonably narrow the uncontrolled powers of top management.
When choosing a registrar, a cautious owner will definitely check:
- whether it is a well-known company with a good reputation in the securities market;
- whether the registrar will provide an opportunity to obtain operational information on the movement of the company's shares;
- whether it is independent of potentially hostile structures.
Monitoring the current state
When buying up the most interesting assets, many aggressors act according to the principle: "Why buy an enterprise if you can buy its management?" Indeed, if an effective system of independent monitoring of its financial and economic activities (in other words, a system of business economic security) has not been built at an enterprise, it will not be so difficult for an aggressor to implement this principle.
The monitoring system is traditionally implemented through the creation of the current monitoring service itself (economic security service) and the control and audit service, whose tasks include conducting comprehensive audits of compliance with the management procedures established at the enterprise.
Managers Motivation
When creating a defense system, one should not get too carried away by the principle "Drag and don't let go", widely known in Russia. The system of total bureaucratization of management procedures and strict control over their observance cannot by itself provide effective business protection. Excessive complication of procedures can reduce the manageability of the business by reducing the efficiency of decision-making, and will irritate top managers and key specialists.
The basis of any team management system is the correct motivation of managers and leading specialists. It is they who make up the core of the company and largely determine the success of this business. Therefore, one of the effective mechanisms for protecting business is the creation of a motivation system that orients the company's management towards the growth of the value and efficiency of the business. In the Western business community, partnership schemes for top managers and key business specialists (options, deferred income mechanisms, "parachutes") are widespread. In modern Russia, these mechanisms are almost never used, which, in our opinion, indicates rather an insufficient development of the culture of corporate governance than the fundamental impossibility of using these schemes on domestic soil.
Ways of active counteraction
Any method of active counteraction must be built on the basis of the aggressor's strategy of action. Therefore, all actions of society aimed at repelling aggression can be conditionally divided into:
- Emergency share buyback from minority shareholders;
- Additional placement of shares by closed subscription;
- Emergency restructuring, asset withdrawal;
- Target redemption of their shares from the aggressor;
- Buying shares or other assets of the aggressor for the purpose of subsequent exchange;
- "White Knight" - leaving under the protection of a stronger player than the aggressor;
- "Reincorporation" - re-registration of a company in another region;
- Litigation (or disputes for any reason).
We plan to cover in detail these and other practical methods of active countermeasures used in domestic conditions in the next publications. We hope that the approach to the organization of complex protection against hostile takeovers proposed in this article has helped you put all the most common methods of protection into a system. With the next adjustment of the business strategy, you will not forget to take into account the issues of its effective protection. When forming a protection system, we suggest you use the old, like the world rule "He who is forewarned is armed."
L.L. Nikitin,
director of consulting department of AKF " Modern business technologies"
D.V. Nurzhinsky,
Head of Legal Expertise Department, ACF "Modern Business Technologies"
Lecture number 8. Hostile takeover protection.
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 counteract hostile takeovers is divided into two parts: preventive and active Events. A task preventive measures– reduce the very likelihood of a hostile takeover. Active events intended for immediate defensive action after the start of a hostile takeover.
The following types of preventive (precautionary) measures are known:
"Poisonous (poisoned) pills,
Amendments to the articles of incorporation,
"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 two options for protective "pills": external and internal .External "pills" give the right to the shareholders of the company under threat of takeover to purchase the shares of the aggressor company at a significant discount. internal pills provide a similar right in relation to the company's own shares - the subject of a potential takeover.
The release of "poison pills" is associated with the possibility of the onset of the so-called. "launch" event. Such an event can be:
acquisition of 20 or more percent of the company's shares by any legal entity or individual;
tender offer for the purchase of 30 percent or more of the shares.
In most cases, "poison pills" are issued by decision of the board of directors and can be withdrawn for a symbolic price at any time before the "triggering" event. This policy of issuing "poison pills" provides the board with room for maneuver in the event of, for example, a friendly acquisition offer.
Poison pills, as a method of protection against hostile takeovers, were invented by the famous American lawyer specializing in takeovers, Martin Lipton. They were first successfully used in 1982 in the USA in a fight between ELPaso Electric and General American Oil. In the 1990s, protection with "poison pills" became commonplace for most American corporations.
The development and continuous improvement of methods of protection against hostile takeovers has led to the emergence of various forms of "poison pills":
Issues of preferred shares;
Issues of rights;
Issues of bonds with a put option.
Issue of preferred shares . This is the first generation of "poison pills".
The target company enjoying such protection distributes to its shareholders dividends 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 “starting” event. In particular, the conditions for issuing said 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 succeeds in carrying out the takeover, then the preferred shares of the target company can be converted into ordinary shares of the aggressor at a market value determined similarly to the previous case.
Issue rights. The "poison pills" in the form of a preferred stock issue had certain drawbacks, so over time they were replaced by a new generation of "poison pills" in the form of a rights issue. Rights are a type of call option issued by a joint-stock company and giving shareholders the right to purchase shares at a fixed price for a certain period of time (usually at least 10 years). The rights to purchase shares are distributed to shareholders as dividends.
In accordance with the terms of the issue, the right to purchase shares becomes effective only if a “triggering” event occurs. It is at the moment of occurrence of such an event that certificates of rights are sent to shareholders. As in the case of preferred shares, the issuer stipulates in the terms of the issue of rights the possibility of their withdrawal during the entire period of circulation for a symbolic price until the “starting” event occurs.
Issuing bonds with a put option . This is the third generation of "poison pills". The issuance of such bonds provides for the right of their owner to demand redemption of the bonds at face value 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, the presentation of bonds for redemption may create serious problems for the absorber due to a lack of financial resources.
Amendments to the statutory documents. Changes in the charter of a joint-stock company are the most common and least costly way of preventive protection against takeovers. Various changes to the founding documents of a company that fears a hostile takeover typically include:
Multi-stage conditions for elections to the Board of Directors,
Regulation on a qualified majority for making decisions on mergers and acquisitions,
Double capitalization, etc.
"Split" board of directors. The "divided" board clause is intended to create obstacles in the path of the aggressor in the process of changing the board of directors. Its essence lies in the division of the board of directors into several groups, while no more than one group of directors can be re-elected at the annual meeting. The most typical variant is the division of the board of directors into three groups with the annual election of one third of the directors. Thus, it may take more than two years for the aggressor to gain full control over the acquired business.
"supermajority" clause. This clause stipulates that more than a simple majority of votes is required to approve a takeover transaction, 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%. The "supermajority" clause may contain an overriding condition whereby the "supermajority" clause does not apply if the takeover is approved by the board of directors of the target company.
double capitalization. Double capitalization provides for the presence in circulation of two or more types of ordinary shares of the company with a different number of votes per share. The main purpose of double capitalization is to provide large quantity votes to shareholders loyal to the target company.
Most a typical example double capitalization is an additional issue of shares that have a large number of votes compared to previously placed shares of the company. In 1988, the US Securities and Exchange Commission banned such share issues leading to a reduction in the number of votes of existing shareholders. However, this prohibition normative act does not have retroactive effect, i.e. does not apply to US companies that double capitalized before 1988.
"Gold and Silver Parachutes". Special agreements with top executives, managers, or staff of the company to pay them one-time compensation in the event of their voluntary or involuntary dismissal at the time of the acquisition or for some time after it. Agreements on "gold" and "silver" parachutes can be concluded for a certain period, but in most cases they contain the so-called. an "evergreen" clause, according to which the initially fixed period of one year is automatically extended for a year, unless there is a hostile takeover.
Active defense against hostile takeovers includes a wide range of activities:
Greenmail and dormancy agreements,
"White knight",
"White Squire"
recapitalization,
Litigation,
Pac-Man Defense.
Greenmail called buyback of shares from the buyer with a premium. The payment of the greenmail is usually accompanied by a no-action agreement, under which the buyer undertakes not to buy additional shares in excess of a certain amount specified in the agreement. For this consent, the buyer receives a fee.
"White knight" - a friendly company that agrees to be the best buyer.
"White Squire" - a kind 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 a sharp increase in the share of borrowed capital in order to deliberately worsen the financial condition of the company that has undergone a hostile takeover. This is, in essence, the transformation of the company into its own "white knight".
Litigation - all kinds of legal legal actions aimed at complicating the takeover process. The most accessible and widespread form of protection against hostile takeovers.
Baek-Man Defense - a mirror response tender offer to the buyer to acquire its shares. The most radical measure of defense against hostile takeovers (defense through attack).
2. Features of the Russian practice of applying protective measures against hostile takeovers.
The measures applied in the Russian practice of counteracting 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 based on a direct violation of the law or on the use of its shortcomings have become widespread. 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 peculiar way.
"Poison pills" in Russian conditions . The release of "poison pills" is not provided for in Russian legislation, however, and 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 the joint-stock company. A similar procedure is defined by the Russian law "On Joint Stock Companies".
Thus, nothing prevents in Russian conditions from issuing 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 the payment for shares is carried out at market value, but not below their nominal value. Due to the above legislative restrictions, “poison pills” are used in Russian practice in a very peculiar way.
Under "poison pills" in Russia, it is customary to understand the various actions of the management of the target company, aimed at creating all sorts of obstacles to the aggressor company. The most common varieties of Russian "poison pills" are:
Bonded deals concluded shortly before the seizure of the enterprise;
Issuance of bills for astronomical sums;
Lease of real estate for long-term lease;
Concealment or destruction of all documents of the target company;
The division of the target company into two enterprises.
"supermajority" clause . Russian companies do not have the opportunity to resort to this method of protection, since the "supermajority" clause is actually defined in our country by law and does not require additional changes to the company's charter. According to Russian legislation, 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, there is only one way for the target company in Russia to block any hostile takeover attempts - controlling more than 25% of the votes of the shareholders of its company.
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 a 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 preference shares of a certain issue the right to vote.
"Gold and Silver Parachutes". This is the only protective measure of a preventive nature that can be used in Russia without restrictions. Russian legislation allows for the inclusion of a special clause in the labor 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, the Russian practice of protection against hostile takeovers so far very rarely uses the possibilities 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 share buyback.
The fact is that in Russia each shareholder - the owner of shares of certain categories, the decision to acquire 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 carry out a division between the ordinary shares of greenmailer and other shareholders. Therefore, when deciding to buy back shares at a premium, it is likely that all shareholders will offer their shares for buyback. In such a situation, the target company would be required to make a proportional share buyback and, accordingly, the planned buyback targets would not be achieved.
Recapitalization . In Russian conditions, the use of recapitalization of the 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. The majority of Russian companies experience no less difficulties in attracting bank loans, since recapitalization requires the attraction of a significant amount of borrowed funds.
"White Knight" or "White Squire" Invitation . 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 there are still practically no investment banks in our country that usually select suitable candidates. In addition, the “white knight” most often conditions his participation in the fate of the target company with certain concessions, which in Russian conditions can quickly become the subject of litigation, as violating the legitimate rights and interests of shareholders.
In the case of attracting a "white squire", difficulties may arise related to the registration of an additional issue of shares: Russian legislation does not provide for the possibility of reserve registration, as, for example, in the United States.
Pac-Man Defense . In its pure form, such protection in Russia is impossible due to the lack of legislation on the tender offer. In the Russian version, the protection of Peck-Man is a set 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 buying up shares;
Appeal to the courts with claims against the aggressor company;
Bringing public attention to what is happening
Purchase of 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 lack of elaboration, 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 opposition to hostile takeovers in Russia.
Specifically Russian Ways to Protect Against a Hostile Takeover . Given that the use of most of the classic foreign methods of combating hostile takeovers in Russia is not possible or ineffective, Russian companies have developed their own methods that are typical only for domestic practice. Specifically Russian ways of protecting business from hostile takeovers are usually classified into two groups:
Strategic ways of protection;
Tactical defenses.
To strategic Ways to protect against hostile takeovers in Russia include:
Formation of a secure corporate structure.
Ensuring effective economic security of the enterprise.
Creation of conditions preventing the purchase of shares.
Creation of a system of control over accounts payable.
Formation of a secure corporate structure . The essence of this strategic method of protection lies in the formation of such a corporate structure of the business, which would almost completely exclude the possibility of its unfriendly 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 a spin-off of several small companies that are not interesting from the point of view of a hostile takeover.
Conclusion of the most attractive assets from the point of view of the aggressor companies to subsidiaries related to each other by cross-ownership of shares.
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.
Creation of conditions preventing mass buying of shares . The most common scheme to prevent aggressive mass buying of shares is the construction of cross-shareholding. The essence of cross-ownership of shares is as follows. A potential target company creates a subsidiary structure with a predominant share in the authorized capital (51 percent or more). The other founders of this subsidiary are minority shareholders who contribute their shares in the parent company as a contribution to the authorized capital. Thus, a controlling stake in the parent company is consolidated from the subsidiary, which guarantees full control over the parent company.
Creation of a control system for accounts payable . Effective control over accounts payable can be carried out in various areas:
Avoiding arrears.
Refusal of contractual relations with unknown companies.
Establishment of a special company that accumulates accounts payable.
Implementation of all finished products through a controlled trading house.
To the number tactical Measures to combat hostile takeovers in Russia include:
Counterpurchase of shares.
Asset restructuring.
Blocking of a block of shares acquired by the aggressor.
Working with shareholders.
Defense through attack.
Counterpurchase of shares . This method of tactical struggle against hostile takeovers is the simplest, but also the most costly. The main purpose of counterbuying shares is to prevent the aggressor company from acquiring a controlling stake in the target company.
Restructuring of the assets of the target company . Blocking a 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 the current legislation. Along with the blocking of the aggressor, an additional issue of shares is simultaneously carried out in order to reduce the share of the aggressor in the authorized capital of the target company.
Work with shareholders . This measure is not legal. It is associated with the identification and suppression of unfriendly actions of certain groups of shareholders helping the aggressor company, explanatory work with shareholders in order to maintain their loyalty to the target company.
Defense through attack . It is a counter attack on the aggressor company, including:
Buying shares of the aggressor company or shares of enterprises owned by it.
Handling applications and complaints to courts and law enforcement agencies on misconduct aggressor company.
Organization of relevant publications in the press.
Disruption of the activities of the aggressor company aimed at capturing the target company.
