Question

What situations could cause a hostile takeover to occur when managers fail to maximize profits. What actions can a company take at the time and build into their charter to protect themselves from a hostile takeover. What tactics were used in 2014 when Men’s Wearhouse and Jos. A. Bank were trying to complete a hostile takeover of each other. Do you think it is ethical to have poison pills and other protections in place when the management isn’t maximizing shareholder value? Why?

Answer 1

A lot of situations can lead to hostile takeover managers fail to maximize profits.
A few instances are as following:

1. Companies are always on the lookout for other small companies where the price to cash flow ratio is less than 1. what this means basically is that the company is generating more cash flow per share then the current price of the share. Thus, such a company definitely very ideal takeover target and the big companies good would first make an ideal offer to the companies board and try to take over the company in a legal and subtle way.

2. Companies are always on look out for other companies who can bring them geographical benefits and additional Synergy expand other Greenfield and brownfield. The basis for such choices because the company would not want to go in a Greenfield or brownfield project by itself and thus the company would feel that it would be beneficial if the company buys out some other company already having a foothold in that particular geography.

In both the above cases athe ideal route for big companies to take over small companies would be to buy out the majority shareholders share. To begin with they would do this in a legal way and an ideal way by recommending to the existing Board of smaller companies the Synergy which the smaller company would been to the big company and why the buyout should take place. Even after multiple requests if the smaller company is not in a position to heed to the large companies' request, at times the big companies go in for hostile takeover. This would mean that the big company first wedding the shareholders of the small company and buying of the entire stake by offering the new creative deals.

The smaller companies can protect themselves from such hostile takeovers by taking adequate measures that the trust of shareholders is not reached at any point during the life of the company. It can be done by having shareholders repose faith in the companies performance, deploying strategies to grow the company manifold, giving shareholder Returns, engaging in responsible mannerthe shareholders and all the stakeholders of the company on a timely basis. Such measures would help the shareholders to have full faith in the company and bar any such hostile takeover ways by any other company.

Lot of techniques where used to acquire Men's Wearhouse and Jos.A. Bank from each other this included plain simple offer to buy out my company at reasonable valuation, subsequent meetings to discuss potential with the board of directors, buy out of other companies take from private equity players and hence claiming complete control of the other company. There were bids, counter-bids from either side. Tie-ups were considered. but finally the offer was terminated byJos.A.Bank.

It is important to have poison pills and other methods in place if the management is not maximizing shareholder value because it is ultimately the maximization of shareholder value which would define the performance of the company and creation of wealth in the long term for shareholders. a lot of things can be done i.E. management can be changed, board of directors under changed, corporate governance can be strengthened. Also currently since whistle blower policy is more favourable for whistleblowers, anybody who feels that the company is doing something wrong and is perfectly in a position to maximize shareholder value but is not doing so should be whistleblowing and bringing to the fore practices which are hampering search shareholder value growth.