Policy Reasons for why we regulate takeover bids and the legislative objectives

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  1. Policy Reasons for why we regulate takeover bids and the legislative objectives wrt them

Kimber Report Rationale: To protect investors of offeree company

  • Traditional reason given for why we legislate/regulate takeover bids, is they want to protect interests of target SHs (the SHs of the company being taken over)
  • Make an informed decision on whether they want to sell you their shares or not

o Per Kimber Report: “Primary objective of any recommendations for legislation wrt takeover bid transactions would be protection of the interests of the SHs of the offeree company (the company being acquired)… SHs should have made available to them sufficient updated information to allow them to come to a reasonable decision about the desirability of a bid for their shares… but also balance: ensure recommendations would not unduly impede potential bidders or put them at commercially disadvantageous position or in a hostile situation with offeree company”

**on exam, whenever talking about the regulation of takeover bids, always mention what objective is being carried out with that rule (info, time or equality)

Objective of protecting shareholders of offeree company is manifested in 3 ways in carrying out t/o bid rules: 1) Information (inform investment decisions); 2) Time (i- for SH’s to think about it, ii- to get opinion from mgmt., iii- to allow for an auction); 3) Equality

• *Exam: are rules here to provide time, information, or equality? If you can’t find somewhere to put it, you don’t understand d the rule (from here to end of course)

How objective of protecting SHs is manifested in t/o bid rules:

  1. Information (Inform Investment Decisions): Designed to give target SHs sufficient information to make an informed decision to whether they want to tender their shares
  2. Time – Time for SHs to think about it
    1. There is no point in giving people information if we don’t give people time to digest it
    2. IF you want them to tender shares to a takeover bid, give them time to think about it
  3. Time to get an opinion from management: Also gives management time to inform SHs of what they think (good or bad idea, good or bad price)
  4. Time also allows for an auction: Best thing it could happen for regulators (and SH), come in and push it to highest price available, means market is efficient and someone doesn’t get deal at a bargain (so more people will play)
  5. Time to give another bidder to come forward
  6. When company is in play, this is their chance to get it, so need time for bidders
  7. Equality: All SHs of target company/offeree must be treated the same. Manifested in regs as follows:
  8. Have to take shares from everyone who tenders, pro rata***

i. I can buy 50% or 100% of company. Not first come first serve or choose which ones you want to buy, you have to take 50% of everyone’s shares!

  1. All SHs whose shares you’re buying have to get identical consideration

i. Can’t enter into agreements giving some people higher premiums than others (or have diff types of consideration e.g. cash v shares)

You can grab notes on other topic from here.

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