Cross-National Variations in the Market for Takeovers - Coursework Example

Cross-National Variations in The Market For Takeovers Name Subject and code Institution Date of submission The presence of cross-national variations in the market for takeovers reflects the greater legal protection for minority investors in the United Kingdom and the United States. Critically discuss this statement. Introduction France, Germany, and Japan are usually regarded as ‘coordinated market economies’ (CMEs) as financial systems, corporate ownership, inter-firm networks, as well as industrial relations demonstrate a greater level of coordination. On the other hand, the United State and United Kingdom are often regarded as ‘liberal market economies’ (LMEs) as transactions in these two countries tended to be market-driven (Jackson & Hideaki 2007). In this case, variations in ownership concentration imply that mergers and acquisitions have to be negotiated with key shareholders in CME countries (Schneper & Guillen 2004). Similarly, banks in Japan and German tend to provide support to management in the event of hostile bids. At the same time, few investors would show the willingness to provide funds for seemingly risky or opportunistic takeovers (Chui 2011). This essay discusses the statement: “the presence of cross-national variations in the market for takeovers reveals the significant levels of legal protection for minority investors in the United Kingdom and the United States.” The statement can be discussed by focusing on triangular mergers, schemes of arrangement, and tender offers. Additionally, primary focus is on the manner in which two common law jurisdictions, the United Kingdom and the United States regulate takeover transactions. It is argued that the statement means that cross-national variations have allowed for countries to establish own legislations to govern takeovers, and that the United States and United Kingdom have tended to focus on protecting minority investors or shareholders from possible detriment in the event of opportunistic takeovers. Takeover transactions Takeover transactions are significant activities that affect companies and their shareholders. For that reason, there is an ongoing public discourse regarding the value and implication of takeovers in addition to the degree to which such transactions should be regulated. One sure topical issue for regulating takeovers is the potential implication of takeovers on minority shareholders (Roe 2002). According to Afsharipour (2016), emphasis on minority shareholders is expected, as research has suggested that laws that protect minority shareholders should be linked to more strengthened financial markets. A number of institutional factors explain the reasons for cross-national variations in takeover events. For instance, mergers and acquisitions (M&A) tend to be greater in situations in which there is a higher level of legislations that protect investors, including laws protecting shareholder rights (Hall & Soskice 2001). Additionally, M&A also tend to be higher in countries that have concentrated ownership, given that transfers of control tend to be more convenient. On the other hand, ownership concentration is seen as a major obstacle against hostile takeovers and may often assist M&A in occasions in which concentrated owners show the willingness to sell. Lastly, M&A is assisted in countries that have legal protection for employment, such as the low level of rights against dismissal. In both the United States and United Kingdom countries, regulators, policymakers, and courts attempt to attend to the likely for detriment to minority shareholders. In some occasions regulators have come up with divergent rules to guide different sets of transaction structures (Callaghan 2012). Such rules usually offer dissimilar levels of rights for shareholders of targets and bidders. They also differ depending on the type of transaction structures (Szentkuti 2007). Triangular Mergers In the United States, among the simplest methods used in executing a takeover transaction in the United States is by using a statutory merger. The regulations in the United States provide for a merger provided that the required formalities are fulfilled. In contrast to tender offers, a bidder in triangular mergers has to deal in a direct manner with the board of the target (Coates 2014). This allows for a valid consummation of a merger, as the board does the approvals for the constituent corporations (Frederikslust et al. 2007). After the approval, a transaction is then passed to the shareholders of each constituent corporation for their vote. In effect, this serves to protect the interested of minority shareholders, as their votes would count in deciding the necessity of constituent corporations. Consequently, when all shareholder and regulatory approvals have been acquires, before the closure of the merger, it is imperative for the shareholders to convert their stocks within the constituent corporations into a right to receive consideration of the merger (Capron & Guillen 2009). This also ensures that the interest of minority shareholders is given the due priority. In the United States, the statutes for the different states offer numerous flexibilities as regards the form of consideration to be applied in a merger. Examples include stock of the buyer, cash, as well as a mix of cash and stock. In the United States, takeovers are usually performed using a one-step triangular merger, or a two-step transaction, which essentially comprise a tender offer before an actual merger. In both of these structures, target shareholders are given authority, via the means of voting or based on their individual decisions to sell their shares (Maher & Andersson 2007). Additionally, target shareholders are provided with the right to go to courts for redress in the event that they suffer certain forms of harm. Within the context of both structures, a significant topical issue in respect to target minority shareholder protection is the legislations that provide sets of rules for squeeze-out transactions. These include transactions which allow controlling stockholders make the company private. While establishing rules for squeeze-outs, the United States regulators, legislatures, as well as courts have made significant attempts to design rules considered generally to be fair and resourceful in ensuring maximal protection of the controlling stockholder bidders from minority shareholders, although it also seeks to protect minority shareholders from takeovers that may be opportunistic or offensive (Afsharipour 2016). Therefore, the regulations in the United States are clearly targeted at protecting the interests of the minority shareholders. In the United States, public companies acquisition applied similar statutory mergers in a triangular form, where the corporation that seeks to “combine” through a statutory merger process established freshly, as a shell corporation. On the other hand, the wholly-owned subsidiary of the bidder becomes capitalized even as consideration is applied in the takeover -- for instance, the finances to be provided as acquisition consideration. Tender Offers According to Afsharipour (2016), a tender offer is a bidder’s a solicitation to buy all or a significant proportion of a target’s shares. This kind of offer is often undertaken with a restricted period of time, laid down at a predetermined price at a certain premium over market price. It usually depends on a shareholder who tenders in a fixed amount of shares. They consist of types of takeover bid, which may either be hostile or friendly. Shareholder actions in tender offers involve an individual’s decision to put up shares for sale instead of having to vote to consent to the transaction (Offenberg & Pirinsky 2012). However, all shareholders are not allowed to tender in their shares while responding to an offer, particularly when the target is traded in public. In many cases, however, the bidder has the desire to do away with outstanding minority shares through an acquisition of the remainder of the target shares not owned by the bidder. In the United States, a second step squeeze-out merger is performed to allow the bidder to acquire absolute ownership of the target. In essence, the transaction entails two formal steps, which include bid as well as squeeze-out that bring about similar result to that of a reverse triangular merger. On the other hand, in the United Kingdom, two-step transactions are not permitted, despite the fact that UK takeover regulation may in some situations permit squeeze-out transaction (Ipekel 2004). In the United States, public company takeovers through a two-step structure entails federal laws that seek to regulate tender offers alongside the state regulations governing the second-step merger. An example of a legislation for tender offers include the Federal Securities Laws The Williams Act that is provided for under Sections 13(d) and 14(d)(1) of the Securities Exchange Act of 1934. The legislation is intended to provide protection to shareholders r investors by offering guidelines for procedures or disclosure of takeovers. Additionally, it seeks to protect minority shareholders for from being treated unfairly while participating in a tender offer. In fact, to a great extent, the Williams Act was enacted with the core objective of providing protection to minority shareholders. For instance, under Rule 14e-1 of the statute, a bidder is required to keep an offer open for 20 days. During this time, minority shareholder may withdraw their shares. The 20-day period is intended to give the minority shareholder adequate time to complete over a takeover and to give them considerable opportunity to change their minds, especially when a more favourable offer is anticipated (Afsharipour 2016). Schemes of Arrangement It refers to a flexible tool applied in reorganizing a firm’s capital. In the UK, the Companies Act considers a scheme of arrangement to be an arrangement made between a firm alongside its creditors, or members of a firm or any class of them. The schemes are required to attend to any topic provided that the parties appropriately consent to the scheme and acquired the necessary approvals. They offer an alternative to takeover bids in the UK, and can be applied to attain similar results as those of US triangular merger (Frederikslust et al. 2007). Compared to a triangular merger in the United States, once a scheme is applied as substitute to a takeover bid, the contracted relationship does not become between the shareholder and the bidder. Instead, it becomes between the target company and the bidder. In such cases, any detriment suffered by the company is not attributable to minor shareholders, but the company as an entity. Additionally, as a scheme is essential a form of corporate action of the target, the target board controls its processes and should therefore be considered friendly. Additionally, similar to triangular mergers, shareholder voting is needed for target shareholders. This ultimately ensures that minority shareholders are given a say in the takeover. In fact, a scheme is required to attain approval of 75 percent of the shareholders. Additionally, after shareholder approval, a target has to search for a court approval of the scheme, which would provided a decision once it is satisfied with that all the formalities and procedures have been fulfilled and that the shareholders’ interests have been taken into perspective through voting (Afsharipour 2016). Roles of courts in minority shareholder protection Hypothetically, minority shareholders have a potential to undergo some form of detriment when in triangular mergers or tender offers. Two typical scenarios are possible at this level. In the first one, a bidder may propose a tender offer at less value compared to the target’s entire outstanding shares (Raftery 2004). At this stage, the minority shareholders proposed to may undergo some form of coercion to compel them to tender their shares. In the second scenario, when a bidder controls stockholder, a tender offer is likely to be an unattractive acquisition structure based on which a controller may squeeze-out the minority. In fact, there is a cause for worry in triangular deals, when the target’s minority shareholders are offered at less value compared to their shares’ fair value when a majority has voted to execute sale transaction. Under such scenario, the courts in the United States a play crucial roles in the regulation the behaviours of the parties (Kuipers et al. 2003). Consequently, minority shareholder’s interests are protected; in a one-step and two-step transaction, the minority shareholders can opt for two protection mechanism: they may exercise fiduciary duty litigation or appraisal rights. Under DGCL Sections 251, 253 or 251(h)), minority shareholders are given a right to seek for appraisal in order to reject a consideration offered in a takeover and to instead, allow the courts to make a decision on whether the shares are actually of “fair value”( Afsharipour 2016). Conclusion As established, cross-national variations have allowed for countries to establish own legislations to govern takeovers, and that the United States and United Kingdom have tended to focus on protecting minority investors or shareholders from possible detriment in the event of opportunistic takeovers. In line with this statement, the regulations in the United States and United Kingdom for takeovers focus on triangular mergers, schemes of arrangement, courts, and tender offers, as mechanisms for protecting minority investors. Regarding schemes of Arrangement, In the UK, the Companies Act considers a scheme of arrangement as offering an alternative to takeover bids in the UK, and can be applied to attain similar results as those of US triangular merger. Any detriment suffered by the company is not attributable to minor shareholders, but the company as an entity. On the other hand, tender offers provide minority shareholders with decisions to put up shares for sale instead of having to vote to consent to the transaction. Lastly, triangular Mergers also serve to protect the interested of minority shareholders, as their votes during takeovers would count in deciding the necessity of constituent corporations. Reference List Afsharipour, A 2016, Deal Structure And Minority Shareholders, Cambridge University Press, Cambridge, viewed 6 Jan 2016, http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1090&context=law_econ> Callaghan, H 2012, "Economic Nationalism, Network-based Coordination, and the Market for Corporate Control Motives for Political Resistance to Foreign Takeovers," MPIfG Discussion Paper 12/10 Capron, L & Guillen, M 2009, “National Corporate Governance Institutions and Post-Acquisition Target Reorganization,” Strategic Management Journal, vol 30 no8, pp.803-833 Chui, B 2011, "A Risk Management Model for Merger and Acquisition," International Journal of Engineering Business Management, Vol. 3, No. 2, pp 37-44 Coates, J 2014, "Mergers, Acquisitions And Restructuring: Types, Regulation, And Patterns Of Practice," Harvard Law School Discussion Paper No. 78107/2014 Frederikslust, R, Ang, J & Sudarsanam, P 2007, Corporate Governance and Corporate Finance: A European Perspective, Routledge, New York Hall, P & Soskice, D 2001, “An introduction to varieties of capitalism”, in ibid, eds., Varieties of Capitalism: The institutional foundations of competitiveness, Oxford University Press, Oxford Ipekel 2004, "A Comparative Study of Takeover Regulation in the UK and France," A Thesis Submitted to the Department of Law of the London School of Economics and Political Science for the Degree of Doctor of Philosophy Jackson, G & Hideaki, R 2007, "Varieties of Capitalism, Varieties of Markets: Mergers and Acquisitions in Japan, Germany, France, the UK and USA," RIETI Discussion Papers Series, June 2007 Kuipers, D, Miller, D & Patel, A 2003, The Legal Environment and Corporate Valuation: Evidence from Cross-Border Takeovers, viewed 6 Jan 2016, Maher, M & Andersson, T 2007, "Corporate Governance: Effects On Firm Performance And Economic Growth," Organisation For Economic Co-Operation And Development, viewed 6 Jan 2016, https://www.oecd.org/sti/ind/2090569.pdf Offenberg, D & Pirinsky, C 2012, How do Acquirers Choose between Mergers and Tender Offers?, viewed 6 Jan 2016, Raftery, C 2004, The “means and ends” of regulating barriers to takeover bids, College Of Europe Bruges Campus Department Of Legal Studies Roe, M 2002, “Corporate Law’s Limits,” Discussion Paper #380, Harvard John Olin Center for Law, Economics, and Business, viewed 6 Jan 2016, http://www.law.harvard.edu/programs/olin_center/papers/pdf/380.pdf Schneper, W & Guillen, M 2004, “Stakeholder Rights and Corporate Governance: A Cross-National Study of Hostile Takeovers,” Administrative Science Quarterly, vol 49 no 2, pp.263-295. Szentkuti, D 2007, “Minority shareholder protection rules in German, France and in the United Kingdom," Central European University, March 2007 Read More