Why do mergers do not go through?
The five main reasons for which a merger and acquisition fail are-
- Lack of funding to close a deal
- The difference in valuation and the ‘valuation perspective’
- Government intervention due to financial regulation
- Hostility previewed from the bidding company
- Lack of transparent behavior and earnings
There is one main reason that an acquisition does not go through, as they do not prove ground hostile takeovers. Some of the bids are given below.
- Dawn Raid– During a ‘dawn raid’, a firm or investor aims to buy a substantial part of the holding, in the takeover-target company’s equity by instructing brokers to buy shares, just as the stock market opens. If the deal happens in early morning, the target firm do not get informed about the purchase.
- Saturday Night Special– This is a sudden attempt by making a public tender offer. The maneuver is done over the weekends.
- Man Friday– A non-vertical company that helps the target and acquiring company to close the deal.
- Half-Closure– A hostile take-over where the bidder does not disclose information post-deal.
- Benign Tumor– A hostile take-over where a person removes a management team based on the bidding of the bidder.
If a company does not want to take over, there are many strategies that management can afford. A few of them are mentioned below.
- Golden Parachute– A ‘golden parachute’ measure discourages an unwanted takeover by offering a lucrative benefit to current executives that might include stock options, bonuses, liberal severance pay and so on.
- Greenmail– A ‘greenmail’ occurs when a large block of stock is held by an unfriendly company termed as raider that can force the target company to repurchase the stock.
- Maraconi Defense– The target company issues a large number of bonds that come with the guarantee that the price can be redeemed highly, after take over.
- People Pill– The management can threaten that in the event of takeover, the management team will resign en masse. This can make the bidder think.
- Poison Pill– There are two types of ‘poison pill’. The ‘flip-in’ ‘poison pill’ allows existing shareholders to buy shares at a discount. This is written in shareholders right plan. An extreme version is ‘suicide pill’, whereby the takeover-target company may take action that may lead to ultimate destruction.
- Sandbag– The target company stalls with the help of another favourable company.
- White Knight– A ‘white knight’ is a company that makes a decent approach than making a hostile bid than a ‘black knight’.
- Black Knight– A ‘black knight’ makes a hostile bid to the company, to make a deal closure by ‘hook or crook’.
- Last Knight– When a company bails out against a hostile bidder for a target company.
- ‘Tortoise and Hare’– A bidding process is so slow that the target company loses interest in the bidding, and supports the bid of another acquirer.
Flawed intentions, making things work, acquisition apprehension work towards the merger and acquisition of a company.