Takeover wars: The ‘Director’ strikes back

Few days ago I was watching a dubbed tamil movie where one of the protagonists has been thrown out of job by the owner of a factory the person swears revenge and then in the finale after lot of dhishum-dhisum the baddy loses and the hero gets the heroine and the film ends, the next day I read a story which has eerie similarity to the movie. A big industrialist Family controls two big companies manufacturing chemicals and cigarettes, a Director of the chemical factory quits (read whatever you want to read) after differences with the owning family. The Family takes a huge loan keeping in collateral some property but as clear title to the collateral could not be proved the shares of the cigarette factory owned by the Family (around 27%) is frozen by order of court. Sensing a perfect opportunity the former Director buys 6.5% of the target cigarette company and makes an unconditional open offer to the shareholders for 25% of the cigarette company’s share where around 67% is in public holding.

Let us analyze what can the Family do now, first its hands are tied by the court which attached the share by a court-appointed arbitrator, which means the voting rights on these shares have been frozen. Hence the only way to stop a hostile takeover is to use a third party like a white knight, white squire or put a plea before the individual shareholders to not support the takeover, if the management is good then most of the shareholders may reject the overtures of the raiders like holdermailing etc. The management is in the worst situation now, if the raider gets less that requisite holding then in absence of around 30% management stake to make to the magic figure the raider would need only 35% holding (presently he is aiming for around 31%); given that Indian s/h are notoriously meeting shy, it would be enough in the current situation if the raider gets 25-30% stake. If you want to read a similar real life takeover bid the read the following news paper report.