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Question 1
BuyEm, Inc. is a company engaged in the hostile takeover business. Under which of the following circumstances would BuyEm be required to file a Form 13-D?
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Correct The SEC requires that when a bidder (usually a hostile bidder, but not always) acquires more than a certain percentage of another company's stock (usually 5% of the target), then that bidder must make a 13-D filing with the SEC. The 13-D disclosure reports the firm's holding in the target, the members of the purchasing group, what plans it has, and why it is acquiring such a large percentage of the target.
Incorrect! The SEC requires that when a bidder (usually a hostile bidder, but not always) acquires more than a certain percentage of another company's stock (usually 5% of the target), then that bidder must make a 13-D filing with the SEC. The 13-D disclosure reports the firm's holding in the target, the members of the purchasing group, what plans it has, and why it is acquiring such a large percentage of the target.
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Question 2
Which of the following is the term used to describe what happens when a board, facing a hostile takeover, seeks an alternative bidder for the company?
Correct In a transaction where a target company is faced with a hostile bidder, it is not uncommon for the target's board to attempt to find another bidder who is more favorable, in the board's view, to the future of the firm. In some situations, this tactic may be seen simply as an attempt by management to entrench itself. However, bringing on an additional suitor may also help raise the price of the deal, thus increasing shareholder value.
Incorrect! In a transaction where a target company is faced with a hostile bidder, it is not uncommon for the target's board to attempt to find another bidder who is more favorable, in the board's view, to the future of the firm. In some situations, this tactic may be seen simply as an attempt by management to entrench itself. However, bringing on an additional suitor may also help raise the price of the deal, thus increasing shareholder value.
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Question 3
OhNo Co. is facing a hostile offer from a buyer. If OhNo is "in the hands of the arbs," the company is said to be:
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Correct After a hostile transaction begins, whether or not the company wants it to happen, the company is now for sale with the likely outcome being that it will be sold to the highest bidder or undergo a major internal restructuring. Under such a situation, one early piece of activity is that individuals known as 'risk arbitrageurs' begin purchasing the company's stock, betting on whether or not the transaction will close. At this point, the company is said to be 'in play' and it is only a matter of time before the firm will undergo some form of major change.
Incorrect! After a hostile transaction begins, whether or not the company wants it to happen, the company is now for sale with the likely outcome being that it will be sold to the highest bidder or undergo a major internal restructuring. Under such a situation, one early piece of activity is that individuals known as 'risk arbitrageurs' begin purchasing the company's stock, betting on whether or not the transaction will close. At this point, the company is said to be 'in play' and it is only a matter of time before the firm will undergo some form of major change.
Question 4
The reason that hostile takeovers are no longer so common is that:
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Correct There are many reasons why the hostile takeover 'craze' of the 1980's has died down. However, the above list represents a group of reasons that are considered to be very important. The media was very much against hostile takeovers and often portrayed them as rich investors stomping on poor employees. Additionally, it can be difficult reengineering a firm without the people who know it best. Thus, most common mergers are undertaken only when management is for the transaction, rather than, as in a hostile deal, often working hard to thwart the transaction's outcome. Finally, while there will always be valuable companies that buyers might acquire in a hostile transaction, many of the companies most favorable to such deals have either been purchased already, or have reformed themselves and their balance sheets in a manner that makes such transactions either difficult to complete or undesirable.
Incorrect! There are many reasons why the hostile takeover 'craze' of the 1980's has died down. However, the above list represents a group of reasons that are considered to be very important. The media was very much against hostile takeovers and often portrayed them as rich investors stomping on poor employees. Additionally, it can be difficult reengineering a firm without the people who know it best. Thus, most common mergers are undertaken only when management is for the transaction, rather than, as in a hostile deal, often working hard to thwart the transaction's outcome. Finally, while there will always be valuable companies that buyers might acquire in a hostile transaction, many of the companies most favorable to such deals have either been purchased already, or have reformed themselves and their balance sheets in a manner that makes such transactions either difficult to complete or undesirable.
Question 5
How might shareholders feel when faced with the choice between a hostile buyer's 13-D plan for a company and a plan offered by management suggesting that it will undertake largely the same changes?
Correct While a shareholder may go through many emotions at the time her company is entered into any sort of hostile transaction (or for that matter any other business combination), some reactions are universal. Typically, a company that becomes a target of hostile activity winds up in that position because management has been a bit careless with the company or has abused the company for its own ends. In such a situation, when faced with a hostile bid, it is not uncommon for management to offer a proposal of its own that claims to do what the buyer plans to do, but to do it with the current management team from within the firm. While such plans are almost universal in hostile actions, it is often the case that shareholders will greet such a plan with a bit of skepticism and ask why management, if it had known about this situation all along, was not improving the company prior to the hostile bidder's entering the scene.
Incorrect! While a shareholder may go through many emotions at the time her company is entered into any sort of hostile transaction (or for that matter any other business combination), some reactions are universal. Typically, a company that becomes a target of hostile activity winds up in that position because management has been a bit careless with the company or has abused the company for its own ends. In such a situation, when faced with a hostile bid, it is not uncommon for management to offer a proposal of its own that claims to do what the buyer plans to do, but to do it with the current management team from within the firm. While such plans are almost universal in hostile actions, it is often the case that shareholders will greet such a plan with a bit of skepticism and ask why management, if it had known about this situation all along, was not improving the company prior to the hostile bidder's entering the scene.
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Question 6
N is a small, close company. M and O are large public companies. P is a small public company. A "Bear hug" would be most likely in which of the following situations?
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Correct A 'Bear hug' is a situation in which a buyer, hostile or otherwise, initially offers a price to buy out shareholders that is so high that it is extremely unlikely that any other firm or investor would offer such a high price. A typical scenario when such a transaction might occur is when a large company, often public, offers an extremely high per-share price for a small firm which owns an asset that the large company sees as critical for its future survival. Typically, such a deal might be towards a small public company that has a limited float, because while the shares are available in public markets, there are not so many of them as to make a purchase impossible. Bear hugs are uncommon in deals between large companies or public companies simply because the size of the transaction is often prohibitive of such a maneuver.
Incorrect! A 'Bear hug' is a situation in which a buyer, hostile or otherwise, initially offers a price to buy out shareholders that is so high that it is extremely unlikely that any other firm or investor would offer such a high price. A typical scenario when such a transaction might occur is when a large company, often public, offers an extremely high per-share price for a small firm which owns an asset that the large company sees as critical for its future survival. Typically, such a deal might be towards a small public company that has a limited float, because while the shares are available in public markets, there are not so many of them as to make a purchase impossible. Bear hugs are uncommon in deals between large companies or public companies simply because the size of the transaction is often prohibitive of such a maneuver.
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