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Evaluating the Shareholders Wealth Consequences in Defeating Hostile Takeovers of UK Companies - Essay Example

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One of the most threatening crises that could strike an organisation or a firm is a hostile takeover attempt. This occurs when one company wants to acquire a competitor or a firm that will add new markets or products. Often the acquiring has neither the intention nor the capability of operating the company…
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Evaluating the Shareholders Wealth Consequences in Defeating Hostile Takeovers of UK Companies
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Download file to see previous pages Changes in the structure and organisation of a company's operations may be reflected in performance data, but these data provide little indication of the nature and extent of the structural changes. Changes in the functions performed within the company, the product mix, the availability of finance, input sources, industrial relations and many more qualitative aspects of the company's operations may also have significance for the long-run development of the acquired company which would not be reflected in relatively short-run performance data (Ashcroft & Love, 1993, p. 39).
An example of a company's effort to substantiate changes through a hostile takeover is that of Olivetti. This Italian industrial giant was long known as a typewriter and office machine company, which almost failed in the 1980s. With the entry of several US competitors in the late 1980s, Olivetti found itself in hot water as it is being toppled down by IBM, Dell, Toshiba, and Compaq. The solution was not obvious, though one business that Olivetti entered in the 1980s, telecommunications, has turned out to be the one in which the company is trying to bet its future. With the bold bid for Telecom Italia in 1998, Olivetti launched one of the first major hostile takeover bids in Europe. After successfully overcoming the strong opposition of Telecom Italia's board and an attempt to recruit Deutsche Telekom as a white knight, Olivetti did take control of the telecommunications company. Now it remains to be seen if Olivetti really can remake itself as a leading telecommunications company moving into the twenty-first century (Raghavan and Naik, 1999).
In occasions of hostile takeovers, the final decision of whether to allow it rests with the stockholders. In an earlier time, they were largely individuals whose purpose in investing was to earn dividends and hope the stock would appreciate in value so they could sell it at a gain for their retirement. Such "little investors" in our era have been replaced by giant investment funds managed by shrewd professionals with sophisticated computer programs to guide their decisions. They work for mutual funds, pension funds, and other large-volume investors with billions of dollars that they must "keep working" for the benefit of their shareholders or members (Loughran & Vigh, 1997).
As there are already strong takeover defences presently available to corporations, shareholders do not have claim to decide whether or not proposed takeover offers are in the best interests of the company. Unfortunately, managerial decision-making may become conflicted for any number of reasons when the company becomes a target for takeover. The burden of proof to show there's no conflict of interest is clearly on the shoulders of the management of the target company. Fact is that any expenditure to "defend" the company from a hostile takeover need to be ultimately justified by enhanced shareholder value. Apparently, during takeovers, the management represents the company, regardless of whether or not it would be more beneficial if shareholders accepted a takeover offer and reinvested the offer value (Neis, 1997). It could also happen that management could overestimate its own ability to create value for shareholders and mistakenly turn down superior offers. Another dilemma that deserves more careful review is that management owning a substantial number of ...Download file to see next pagesRead More
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