Financial Accounting Blog

Tuesday, June 15, 2004

Hostile Takeovers. The Economist says that hostile takeovers are on the rise again and that they remain unpopular with investors and government regulators.
...hostile bids are, in fact, just as unpopular in America these days which is what makes Oracle's recent unfriendly bid for PeopleSoft, a rival software firm, stand out. Despite the efficiency of its capital markets, America's market for corporate control is very far from free. A slew of hostile takeovers during the 1980's led many states to legislate to allow firms to implement anti-takeover measures, and these have been backed by the Supreme Court.
Some companies have instituted "poison pill" polices to prevent hostile takeovers.
PeopleSoft has the option of using a so-called "poison pills" the ability to issue masses of shares that would dilute its value in the event of a takeover. It also has a staggered board, where directors are elected in different years, making it impossible to take control of the company in a short space of time. In theory, these measures are meant to forestall a "rush to judgment" in the event of a hostile bid. In practice, they protect incumbent managers against any threat to their position.