Business Environment - Assignment Example

Business Environment Measures to Deter Takeover of a Business Takeover of businesses by larger ones is a common thing in the world of business. A company publicly asks shareholders in the target company to tender their shares on stipulated terms in a takeover bid. Conventionally, a negotiation on takeover bids occurs between the offeror and controlling shareholders to acquire the latter shares. When parties reach an agreement, the parties offer a similar offer to other shareholders. In case of disagreements of the parties then there is no point to make an offer to the other shareholders. Similarly, if there is no controlling shareholder in the target company, then the takeover bid happens directly to all shareholders. In case where the stakeholders of disagree the following measures are appropriate to dissuade takeover of a business by a larger business (Gaughan, 2010:183). Pre-positioning Measure This is an attempt of existing stakeholders to get more shares to prevent sell of shares to other people. In this way, the existing shareholders can maintain their proportional ownership of the company under the threat of been merged. This greatly prevents additional common shares of a company. The effect of this is to increase the number of shareholders that is required to obtain control in hostile takeovers. The shareholders purchase the new shares the company issues in proportion to the member’s current shareholding on the same or more favourable terms than the share that it offers to the third party. This attempt allows the shareholders of the company under the threat of merging to maintain the current voting power in the company (Gaughan, 2010:184). Structure Measure This is a strategy whereby the company under the threat of merging restructures itself. These are efforts to deliver greater value to the shareholders. The strategy configures the company to prevent the takeover and preserve certain assets. Structuring may involve electing a board of directors through shareholders voting to oversee the daily activities of corporate governance of the company. This improves the financial and strategic performance of the company. Electing new board of directors to replace the existing ones deters the imminent merging of a company under threat. The logic behind this is that the new board of directors is not friendly to the potential acquirer and therefore they cannot vote in favour of transaction to merge the company (Gaughan, 2010:184). Revaluing Assets Measure Revaluation of assets encompasses taking the account of inflation or any changes of value of assets since the company acquire them. Revaluation seeks to increase the net value of the assets to make the takeover offer to become less attractive. The revaluation of depreciable assets causes subsequent increase in depreciation charges. Revaluation of assets paints a good picture of a company that has good assets and value brand. This is because it increases the good will making the company more costly to acquire (Gaughan, 2010:186). Reject bid on Basis of its Undervaluation Measure The stakeholders of the company under the threat of takeover can reject the bid if it is undervalued. Undervaluation is a selling price that is below the investments true intrinsic value. The larger company that wishes to merge the other company can undervalue the company’s financial statements thereby underestimating cash flows, return on assets, capital management, and profit retention. The stakeholders can vote to reject the company offer and thereby prevent a possible major of their company (Gaughan, 2010:187). Dispose Underperforming Assets This is selling of non-core assets that contribute little to the performance of a company. Non-core assets are those assets that have reached the end of their useful life and are unserviceable. Disposing them helps the company under the threat of merger to give good and favourable outcomes. This ensures maintenance of expected service and output requirements. In addition, it reduces the holding of surplus and under-performing assets. The company therefore becomes expensive to acquire thereby deterring the moves of the larger company Gaughan, 2010:184). Announcing Higher Dividends Higher dividends depict the current income of the shareholders. This is a measure of a company to portray that it has too much cash to prevent any possible takeover. Announcing higher dividends make it difficulty for large companies to acquire it. This helps to eliminate the negative image of the company under the threat of merger in the public arenas. The higher dividends portray a financial stable company and thereby deterring possible merger with large companies (Gaughan, 2010:188). Suggest Reasons for Improving Performance Measure The stakeholders can give convincing reasons that shows that their efforts are geared towards improving performance of their company. The company can offer their shareholders with higher premium, which prevents takeover bids. The stakeholders can make the firm illiquid that it sets the cost of borrowing money to take over the company at a very high level (Gaughan, 2010:185). These are enough reason to thwart the efforts of the large company from acquiring the smaller business. Appeal to Shareholder Loyalty Patriotism This is a strategy to prevent a takeover bid. The stakeholders elicit for the support from the stakeholders body to rally behind their efforts to deter a takeover. The aim of this unity is to raise enough awareness that the smaller company is financially stable and can sustain it. The patriotism of stakeholders deters the management to stop their activity of merging the company. This save the company and therefore it can continue to maintain its status as an autonomous business. Use of the Pac-man Defence This is a strategy of the company under the threat of takeover bid to attempt to acquire the large company. This is a measure to shock the would-be-acquirers through placing cash to purchase the larger company. It thwarts the attention of the larger company to possess the smaller companies. In this way, the stakeholders can prevent the unwanted merger of their company. The smaller business restores its position in the trading world. White Knight Takeover A white knight is a company that is friendly to target corporation and therefore enters into an agreement on merger to prevent it from the hostile acquirer from taking it. The shareholders can approach the white knight during takeover process for financial and other information on the target. The purchasing price of white knight needs to be superior to that of hostile acquirer (Gaughan, 2010:185). In this way, the targeted company is able to evade merge in a tactful manner. 2. Corporate Silos Corporate silos refer to dysfunctional units or department within a business, company, or a corporate. The attributes of corporate silos is include tendency to protect themselves, maintain and hold duplicates of data and services available centrally. In addition, corporate silos foster more inward communication than the outside, and place their own narrow-minded goals ahead of larger goal of the business, company, and enterprise itself. This has detrimental effects on business because of internally inconsistence projection that a company can make about the market. Corporate silos creates communication breakdown whereby different departments do not converse with each other on matters of the company interest (Hawkins, 2005:12). There are several reasons to explain the development of silos. To start with, silos mentality develops when teams are spatially separate. In this case, each department adopts its own way of carrying out its business. In spatial separation, each department focuses on their activities excluding the other departments, which are not within the department’s location. Second, the attitude of unit managers can fuel development of corporate silos. In this case, managers of different department have divided interest whereby each one of them manages the departments without consultation with managers of other departments. This brings underperformance of the organisation as a whole because different managers concentrate their efforts to better their units. Strong departmental priorities contribute remarkably towards the development of corporate silos. Different departments set out their priorities with disregard to the corporate priorities. This greatly dooms the efforts of the corporate to attain meaningful achievements. Fourth, the corporate can formulate policies and procedures that can make corporation among different departments very difficulty. Some of these policies may encourage individual departments to focus on their mandate and thereby overlooking the enterprise goals (Hawkins, 2005:13). This encourages a communication breakdown since each department concentrate on its activities as dictated by the policies. Fifth, poor project management can attract development of corporate silos. In this situation, leadership of a corporate fails to give the right directions to execute different projects. The managers fail to ensure that all the units in a department work in harmonious ways to attain the goals of a given project. Failure of supervisors to give the units within corporate up-to-date information invites communication breakdowns. Lack of communication in the execution of projects among distinct units creates uncertainty about the project. People are not sure about the status of the projects. This derails the efforts of corporate to have one voice resulting to divisions. To curb development of silos, there are different methods that an enterprise can adopt. First, the business enterprise should endeavour to have good management. This measure helps in aligning cultures, values, and expectations of the enterprise (Hawkins, 2005:19). It encourages different units of a corporate to work together because they share the same values and culture. The managers should be in the forefront to ensure that all staff embrace co-operation. The management should emphasise on staff learning and each one should develop his/her potential to benefit both the unit and business enterprise as a whole. Second, business enterprise should encourage meetings of different departments. This is convenient and easy to prevent many intra-organizational gathering within a daily schedule to own division. Meetings should focus on the primary goals and objectives of the enterprise as whole and not individual departments. It keeps workers of different departments in their comfort zones, socially and in work situation (Hawkins, 2005:17). Meetings avoid development of differing priorities within different departments and create unity in enterprise. Third, corporate can introduce major incentives for the workers to prevent interactions at personal level. This is because such interactions promote division along departmental lines. Incentives encourage employees to direct their efforts on the work that requires their prowess. The corporate should have performance appraisal and compensation to motivate its workers (Hawkins, 2005:13). Allocation of tasks across divisions from different parts of organisations will encourage interactions and compliment of each other’s skills. This will eliminate development of silos. Last, corporate should encourage interpersonal communications. Communication training and listening skill will do away with development of silos. Training encourages workers to have a responsibility of their communication. The employees will have the right perception about the organization as a whole but not their individual departments. The corporate should encourage office space and lunchrooms to increase interactions of members of individual departments. They are tangible avenues to help to bridge the gaps that silos create (Hawkins, 2005:16). Bibliography Gaughan, P., 2010. Mergers, Acquisitions, and Corporate Restructurings. New Jersey: John Wiley & Sons. Hawkins, D., 2005. The Bending Moment: Energizing Corporate Business Strategy. London: Palgrave Macmillan. Read More