Anti Takeover

Electronic copy available at: http://ssrn.com/abstract=1717769Electronic copy available at: http://ssrn.com/abstract=1717769

Swapneshwar Goutam Anti-takeover Amendments:

An overview: as merger management techniques in public M&A deals

[31 Charted Accountancy Practice Journal 553 (2010)]

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ANTI-TAKEOVER AMENDMENTS| AN OVERVIEW: AS MERGER

MANAGEMENT TECHNIQUES IN PUBLIC M&A DEALS

SWAPNESHWAR GOUTAM

B.A. LLB (HONOURS)

Email: [email protected];[email protected]

Abstract :

This article provides explorative study covering under five heads;

Firstly, introductory approach on Anti-takeover Amendments;

secondly, Types of Anti-Takeover Amendment, stress has been laid

on the four major types of anti-takeover amendments. Thirdly, the

analysis of tactical strategies provisions under Indian Companies

Act, 1956 as one of the only measures to tackle threat of takeover bid.

Fourthly, Anti-takeover as a means of authorization of preferred

stocks used by management and lastly, antitakeover amendment as

a tool of corporate policy and lastly, why there is a need of sound

environment.

INTRODUCTION

It is often proposed that the best defense mechanism is anti-takeover

amendments to the company's article of association, popularly called 'shark

repellants'. Thus by the amendments of the AOA of a company, the anti-

takeover mechanisms is used as quality means of technique as of the

sophisticated means of takeover defence in cultivating the sound environment by

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amending AOA have to be voted on and approved by shareholders. This practice

consists of the companies changing theirs regulations, rules, byelaws etc., to be

less attractive corporate bidder. Generally, it can be said one of the safest

techniques of protecting managerial control of the firm through merger, tender

offer or by replacement of the board of directors.

This paper also highlights the need of sound regulations under the code

elevating and molding sound business environment in public M&A deals. Overall

study is based on 'Anti-Takeover Amendments' defence mechanism and how far

the Indian laws & regulation's governing with M&A dealing call for more adequate

defense techniques and restructuring for public M&A deals and promoting sound

governance to domestic as well cross border M& A, deals taking place in

domestic market. The sound defence mechanism techniques absence can be

easily felt and found under present takeover code. Restructuring and

reorganization mechanism in India is lacking from adequate quality defense

technique that have been kept separate from the increasing developed strategies

and the framework to demonstrate, how the entire dazzling panoply of activities

can be employed as takeover defense against the increased value of corporate

restructuring and organization.

In a hostile tender offers made directly to a target company's shareholder, with or

without previous overtures to the management, has been considerable interest in

devising defense strategies by actual and potential targets. Defense can take the

form of fortify one self, i.e., to make the company less attractive to takeover bids

or more difficult to take over and thus discourage any offer being made.

By and large, defensive mechanisms are restored to perceived threat against the

company, ranging from early intelligence that a 'rider' or any acquirer has been

accumulating to the company's stock to an open tender offer. Adjustments in

asset's and ownership structure may also be made even after a hostile takeover





bid has been announced. A mounting defense mechanisms like 'antitakeover

amendments' which are used by the company's amending their constitutions/

Article of Association, which is popularly called as 'shark repellents'. Thus by

amending AOA of a company, the antitakeover amendments can be implied

which have to be voted on and approved by the shareholder. The practice

consists of the company changing the articles, regulation, bye laws, etc, to be

less attractive to the corporate bidders. This article purports, to examine the utility

and affluence of exercising anti-takeover amendment which are also known as

"Shark Repellants", it is one of the defensive mechanisms used to protect a

company management. This defense is against the takeover bid, anti-takeover

amendment is to be exercised by companies as a one of the tactical strategies to

stave off takeover bid.

It's one of the swift modes which have been increasingly utilized by the BOD or

directors, by exercising their statutory power as protective strategies in the

company from take-overbids which will consequently facilitate to check them and

thwart away the bids. It will also implement new conditions on the transfer of

managerial controls over the firm through a merger, tender offer, or by

replacement of board of directors. It is one the most utilized strategies adopted in

USA and raising one in India by the companies by changing and amending their

bye-laws and regulations to be less attractive for the corporate raider company.

Overall approach is to highlight the critical issues of this defensive mechanism

used by companies, the impact of anti-takeover amendment on the financial

performance and long term managerial decision making.

AN INTRODUCTORY APPROACH ON; "ANTI-TAKEOVER AMENDMENT"

THE CONCEPT

Anti-takeover provisions took on a variety of forms, with an corporate

charter/constitution or articles of associations as one of the means for





implementing effecting defense mechanism popularly called as shark repellant.

Anti-takeover amendments are among the most common anti-takeover

provisions which are most frequently in used as defense in corporate defence

mechanism.1 Generally, it's believed that role of antitakeover amendments in

influential determination of managerial investment behavior. Antitakeover

amendments are one of the means by which long-term employment contracts

may be created.2 Several other factors, such as insider ownership and insider

representation on the board of directors, which could help to create long-term

employment contracts, are not explicitly examined in this study. Some

proponents of antitakeover amendments believe that such contracts protect

management from the potentially disruptive effects of takeovers, enabling them

to focus on long-term strategic decisions without the threat of either loss of firm

control or job displacement.

Therefore, antitakeover amendments reduce the number of myopic decisions

made by managers.3 Critics of antitakeover amendments argue that by removing

the threat of takeover, anti-takeover amendments also remove the disciplining

mechanism of the takeover market.4 Anti takeover amendments must be voted

on and approved by shareholders. Although 95% of anti takeover amendments

proposed by management are ratified by shareholders, this might be because a

planned amendment might not be introduced if management is unsure of its

success.5 Failure to pass might be taking as a vote of no confidence in

incumbent management and may provide a platform for a proxy fight or takeover

attempt where none had existed before.

The evidence provided that institutional shareholders such as banks and

insurance companies were more likely to vote with management on anti takeover

amendments than others such as mutual funds and college endowments.

Brickley, Lease and Smith, in their research found that block holders more

actively participate in voting than non-blockholders and might oppose proposals

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that appear to harm shareholders.6 Amendments having the most negative effect

on stock price (amendments other than fair-price amendments) are adopted by

firms with the lowest percentage of institutional holdings and the highest

percentage of insider holdings. Jarrell and Poulsen, suggested that these results

helped explain how harmful amendments receive approval of shareholders. The

evidence also suggested that block holders do playa monitoring role. Institutional

holders are sophisticated and well informed, so they vote in accordance with their

economic interest more consistently than less well informed small investors.7

As discussed above rationale can to be drawn that, antitakeover amendments

are generally to impose new conditions on the transfer of managerial control of

the firm through a merger or tender offer or by replacement of the board of

directors. Anti takeover defenses: With a high value of hostile takeover activity in

recent years, takeover defenses both premature and reactive have been restored

to by the companies.

Anti-takeover amendments, which both facilitate managerial entrenchment and

provide protections supporting informal agreements, are beneficial overall.8 Anti

takeover defenses are widely disputed as anti investor. These strategies can be

costly to the firms like increasing the leverage, selling firm's important asset to

make the target firm unattractive. Regulator's ambiguity on this issue can be best

understood from the Euro-Shareholder Guidelines (2000)9, which states that

"anti-takeover defenses or other measures which restrict the influence of

shareholders should be avoided".10 In my understanding apropos, of using anti-

takeover amendments as defensive mechanism is one of dynamics character

framework which is adopted by the corporate firms as a defensive step, when it

comes to know that corporate raider as has been making efforts for takeover.

TYPES OF ANTI-TAKEOVER AMENDMENTS MECHANISMS;

A CRITICAL APPROACH










This part deals with the various other mechanisms available as modes for the

corporate firm's corporate character. Strategic measures which are available

under the anti-takeover amendment which are apropos to be used as a defense

mechanism. There are four major types of anti-takeover amendments which are

used an effective means of antitakeover amendments which are highlighted in

this part.

SUPERMAJORITY

Supermajority provisions typically increase the shareholder approval requirement

for a merger to the range, thus superseding the approval requirement of the

charter of the state in which the firm is incorporated.11 Supermajority

requirements may block a bidder from implementing a merger even when the

bidder controls the target's board of directors, if the bidder's ownership remains

below the specified percentage requirement.12 Supermajority provisions raise the

cost of a hostile takeover and encourage potential bidders to deal directly with

the target company's board of directors, which typically has the option to waive

the provision if a majority of directors approves the merger (a so-called `board-

out provision'). Pure supermajority provisions would seriously limit the

management's flexibility in takeover negotiations.13

POISON PILLS

The classic 'poison pill strategy' (the shareholders' rights plan) is the most

popular and effective defense to combat the hostile takeovers. Under this method

the target company gives existing shareholders the right to buy stock at a price

lower than the prevailing market price if a hostile acquirer purchases more than a

predetermined amount of the target company's stock. Poison pill provisions are

the most recent and perhaps the most controversial of the antitakeover

provisions. Poison pill provisions provide target shareholders the right to

purchase additional shares at a discount or to sell shares to the target at a








premium if certain ownership changes occur, such as the acquisition of a

specified percentage of the firms shares by a bidder considered hostile by

current management.14The target shareholder's right to purchase shares at a

discount is known as a flip-over plan.15

Moreover, a poison pill is important discussing how a company could put in a

provision in its articles whereby a hostile acquirer who succeeds in taking control

of that company and/or its subsidiaries is prohibited from using the company's

established brand name. It is believed that different Tata Companies have in

place an arrangement with the Tata Sons holding entity, whereby any hostile (or

otherwise) acquirer of any of those entities is not permitted to make use of the

established Tata brand name. Consequently, the bidder might be able to

takeover the target Tata Company but will be shortchanged as it will not be

entitled to a significant bite of its valuation -the valued brand name. 16

The right to sell shares at a premium is known as a `back end plan'.17 The poison

pill is considered the most potentially harmful antitakeover measure since

shareholder approval is not required to adopt poison pill provisions and

management has full discretion in determining when the poison pill provision is

applicable.18 The purpose of this move is to devalue the stock worth of the target

company and dilute the percentage of the target company equity owned by the

hostile acquirer to an extent that makes any further acquisition prohibitively

expensive for him.

FAIR PRICE AMENDMENT

Fair-price amendments are supermajority provisions with a board-out clause and

an additional clause waiving the supermajority requirement if a fair price is paid

for all purchased share. The fair price commonly is defined as the highest price

paid by the bidder during a specified period and sometimes is required to exceed

an amount determined relative to accounting earnings or book value of the










target. Thus, fair-price amendments defend against two-tier tender offers that are

not approved by the target's board. A uniform offer for all shares to be purchased

in a tender offer and in a subsequent cleanup merger or tender offer will avoid

the supermajority requirement. Because the two-tier tender offer it is not

essential in successful hostile takeovers, the fair-price amendment is the least

restrictive in the class of supermajority amendments.19

CLASSIFIED BOARDS

Another major type of Antitake over amendment provides for staggered or

classified boards of directors to delay effective transfer of control in a takeover.

To delay effective transfer and control in a takeover, variations on anti-takeover

amendment relating to the board of directors include provisions prohibiting the

removal of directors. Except for cause and provision fixing the number of

directors allowed preventing "packing" the board.20

AUTHORIZATION OF PREFERRED STOCK

The board of directors is authorized to create a new class of securities with

special voting rights. This security, typically preferred stock, may be issued to

friendly voting rights. The security preferred stock, may be issued to friendly in a

control contest. Thus, this device is a defense takeover bid, although historically

it was used to provide the board of directors with flexibility in financing under

changing economic conditions. Creation of a poison pill security could be

included in his category but generally it's excluded from and treated as a different

defensive device.

ANTITAKE TAKEOVER AMENDMENTS IN INDIA

Anti-takeover provisions under Indian law could prevent or deter an entity from

acquiring the Company. Indian takeover regulations contain certain provisions

that may delay, deter or prevent a future takeover or change in control of the







Company. These provisions may discourage a third party from attempting to take

control of the Company. Consequently, even if a potential takeover of the

Company would result in the purchase of the equity shares at a premium to their

market price or would otherwise be beneficial to shareholders, it is possible that

such a takeover would not be attempted or consummated because of Indian

takeover regulations.

In Indian company law regime, the scope for such amendments is highly

restricted. Sec. 255 of the Companies Act, 1956, which says about the

appointment of director at general meeting; it says appointment of directors at

general meeting, it is designed to eradicate the mischief Caused by perpetual

managements. At an AGM only one-third of the directors of the company, whose

offices are determinable by retirement, will retire. Therefore putting the example

in the Indian context, in case of 9 directors, 3 can be made permanent directors

by amending the articles i.e. one-third can be given permanent appointment,

under Section 255.21 Thus the acquirer would have to wait for at least three

annual general meetings before he gains control of the board. But this is subject

to Section 284, which provides that the company may by an ordinary resolution,

remove a director before the expiration of his period of office. Thus any provision

in the articles of the company or any agreement between a director and a

company by which the director is rendered irremovable from office by an ordinary

resolution would be void, being contrary to the Act. Therefore, to ensure

domination of the board of the target management, there needs to be strength to

defeat an ordinary resolution.22

PREVIOUS UNDER DIP GUIDELINES

The DIP Guidelines also provide that the right to buy warrants needs to be

exercised within a period of eighteen months, after which they would

automatically lapse. Thus, the target company would then have to revert to the







shareholders after the period of eighteen months to renew the shareholders'

rights plan. Without the ability to allow its shareholders to purchase discounted

shares/options against warrants, an Indian company would not be able to dilute

the stake of the hostile acquirer, thereby rendering the shareholders' rights plan

futile as a takeover deterrent.23 As seen above in the previous chapters, on the

discussion of various amendment defenses mechanism for the poison pill

strategy to work best in the Indian corporate scenario certain amendments to the

prevalent legal and regulatory framework are required. Importantly a mechanism

must be permitted under the Takeover Code and the before amendment of DIP

Guidelines which permits issue of shares/warrants at a discount to the prevailing

market price. These amendments would need to balance the interests of the

shareholders while allowing the target companies to fend off hostile acquirers.24

That said, history is ripe with examples of how a little legal ingenuity and a few

pre-emptive strategies can fend off the advances of the most ardent hostile

acquirers. As mentioned earlier in this article series, one of the advantages of the

poison pill strategy is that there is no rigid structure to it and it can be tailored to

suit the particular needs of a company; as a result, Indian companies are not

restricted to adopt the classic version of the pill i.e., the shareholders' rights

plan.25

UNDER THE ICDR REGULATION, 2009

New provision which are included by caring out amendment under the new ICDR

Regulations, 200926; the AOA and MOA of the company must comply with the

DIP guidelines Disclosure about the name and type of organization, brief

description of the business of the entity concerned and nature and extent of

interest of the promoters shall be given in a tabular form in respect of the

following entities irrespective of whether they are under the same management

as per Section 370(1B) of the Companies Act. Under the heading of related party









transaction enterprises in which a substantial interest in the voting power is

owned, directly or indirectly, by any person described in (c) or (d) or over which

such a person is able to exercise significant influence. This includes enterprises

owned by directors or major shareholders of the issuer.

Under Clause 4.51 of ICDR regulation which added up by the amendment to the

Takeover Regulations and Listing Agreement that promoters are required to

make disclosure about the pledged shares. The Existing provisions of the DIP

Guidelines reflects the decision of the Board taken having regard to the changed

circumstances. Accordingly, this recommendation of the Committee is not

incorporated in the ICDR regulations. Under the recently SEBI(ICDR)

Regulations, the exercise price of the warrants must be the average of the

weekly high and low of the closing price during the six months or the two weeks

preceding the date when the general meeting of the shareholders is held to

consider the proposed issue. Additionally, the ICDR Regulations require 25% of

the price payable for the warrants to be made upfront, which amount is forfeited if

the warrants are not allotted within a period of 18 months.Anti-takeover

amendments are basically traditional takeover defenses Indian Companies.

EMPLOYEE STOCK OPTIONS SCHEME (ESOS)

Another variation of the poison pill that may be explored in India brings the

Employee Stock Options Scheme (ESOS) into action. ESOS is governed by the

SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme)

Guidelines, 1997, whereby a company granting options to its employees

pursuant to ESOS have the general freedom to determine the exercise price,

subject to the adherence to the accounting policies prescribed under the SEBI

guidelines in this regard. Thus, an effective poison pill defence may be achieved

by issuing ESOS at a discount, which would serve to dilute the share value of the

hostile acquirer over the target company. Indian companies need to shift from





desperate defensive play to sitting ready on the offensive. It is time we introduce

the poison pill to the Indian business world and adapt it to make it our own.

However, the reason for utilizing the poison pill defence is to protect shareholder

value and interest while stalling entities such as asset strippers that do not have

the best interest of the company in mind or add any value to it.

RECENT AMENDMENT TO TAKEOVER REGULATIONS;

ANTI TAKE OVER AMENDMENTS

Securities and Exchange Board of India (SEBI), in its letter dated July 21, 2009,

sent to all stock exchanges, has prohibited public listed companies from issuing

shares with superior voting rights or dividends. As all existing listed companies

have to remain compliant with the listing agreement, as amended from time to

time, SEBI's move will imply that companies with "differential voting rights" DVR

shares or shares with differential dividends will now be required to bring them at

par with other shares.27 However, no time period for such action has been

provided, and such an amendment is likely to be contentious in the case of

companies that have already issued DVR shares.

The proposed change in the Companies Bill means that companies will no longer

have choice of instruments to suit various investment paradigms of investors.

Generally, investors desire greater financial flexibility and/or management

control. The proposed change in the Companies Bill also denies the controlling

shareholder in a company the ability to attain greater degree of control to ward-

off takeover threats. DVR shares were held to be legitimate anti-takeover tools by

the Company Law Board in its order dated March 12, 2009, when it approved the

validity of special series equity shares carrying nil dividends and 20 voting rights

per share. These shares allowed Mr Karamjit Jaiswal to gain majority control

over Jagatjit Industries Ltd. and successfully abort the takeover of the company

by his relatives.






In brief by highlighting dominant points which have come up as enthralling by

recent aforesaid decision of principle company law board, New Delhi., in the case

of Anand Pershad Jaiswal and Ors. v. Jagatjit Industries Limited28, the petitioners

representing 11.5% of the Issued Share Capital of the Company filed a Petition

under Section 397 and 398 of the Companies Act, 1956, aggrieved on account of

certain alleged acts of oppression and mismanagement in the affairs of the

Company (Jagatjit Industries Limited (JIL),

The following relief's were claimed before the board as follows:-

a) Board of Respondent No. 1 stands superseded and appoint an

Administrator to take charge of the management and affair of the

Company and its books, papers, records and documents for ensuring

smooth and proper functioning of the Company.

b) Frame a scheme for management, administration and control of the

affairs of the Company on such terms and conditions.

c) Declare that the allotment of 25,00,000 Equity Shares of the

Respondent No. 1 to the Respondent No. 7 Company, by the Board

Resolution dated 30.4.2004 read with the resolution dated 16.6.2004

passed at the EGM of the Respondent No. 1 company is null and void and

cancel the same;

d) the transfer of shares held by Respondent No. 1 in L.P. Investment to

group companies of Respondent No. 2 to be null and void and restitute the

same investments in the hands of Respondent No. 1.

Hon'ble chairman of the board formed the view that there was no merit in the

challenge to the allotment of shares with differential voting rights on the facts as

also legally and the preferential allotment of the shares made by the Company on

16.5.2004 was legally permissible in view of the provisions of Section 86 of the






Companies Act, 1956 as amended by the Companies Amendment Act, 2000,

read with the Companies (Issue of Share Capital with Differential Voting Rights)

Rules, 2001. After the amendment to the Companies Act by the Amendment Act

of 2000 the issue of shares with DVR is permissible under the provisions of the

Companies Act, 1956. With regard to the Articles of Association of the Company

I am of the view that in view of the provisions of the "Capital" clause in the

Memorandum read along with the Articles of Association of the Company the

Respondent No. 1 was authorized to issue shares with DVRs.

In contemplating the facts more critically a settlement was planned between

Jagajit Industries Ltd. and L.P. Jaiswal & sons pvt. Ltd., they were to be

purchased at Rs. 36,50,00,000/- (Rupees Thirty Six corer fifty lakhs) for each.

Further development of the case which was not in favour of appellant the

respondent company buyback the shares, and appellant contested against them

claiming action amount to be against the order passed amounts to oppression

and mismanagement, and preferential allotment of shares and DVR is legally

permissible. However, regulators can argue that DVR shares distort the balance

between rights and corresponding duties for a class of shareholders. DVR

shareholders could oppress the minority or obstruct legitimate participation by

other shareholders.

Having voting power without commensurate economic interest in a company

poses the threat of (a) mismanagement (since the board may be easily

replaced); (b) misuse of voting power as little or no financial loss may be

incurred; and (c) poor corporate governance.29 On the hand the development

Clause 28A is inserted after clause 28 of the Listing Agreement: The company

agrees that it shall not issue shares in any manner which may confer on any

person, superior rights as to voting or dividend vis-à-vis the rights on equity

shares that are already listed SEBI further amended Clause 19 of the Listing

Agreement by inserting a sub-clause (d) after sub-clause (C).30 Accordingly







Clause 19 (d) is inserted after clause 19 (C) of the Listing Agreement:that in case

of a further public offer to be made through the fixed price route, the company

shall notify the stock exchange, at least 48 hours in advance, of the proposed

meeting of its Board of Directors convened for determination of issue price.

Companies Bill means that companies will no longer have choice of instruments

to suit various investment paradigms of investors. Generally, investors desire

greater financial flexibility and/or management control. While in India, the notable

examples of companies that have issued DVR Shares are Tata Motors and

Pantaloon Retail, in the US, DVR shares have been issued by Google, Ford and

Berkshire Hathaway.

DVR shares were held to be legitimate anti-takeover tools by the Company Law

Board in its order dated March 12, 2009, when it approved the validity of special

series equity shares carrying nil dividends and 20 voting rights per share. DVR

shareholders could oppress the minority or obstruct legitimate participation by

other shareholders. Availing voting power without commensurate economic

interest in a company poses the threat of;

(a) Mismanagement (since the board may be easily replaced);

(b) Misuse of voting power as little or no financial loss may be incurred;

(c) Poor corporate governance. While the regulators' effort to balance the

interests of majority and the minority shareholders is commendable, the

rationale for limiting the ability to issue DVR shares by private companies

or closely held public unlisted companies is not clear.31

As regards the current amendment the proposed change in the Companies Bill

also denies the controlling shareholder in a company the ability to attain greater

degree of control to ward-off takeover threats. Other amendments in Companies

Act, 1956 to the effect changes might create factors for combating takeover






riders and facilitate restructuring the corporate to increase global

competitiveness, by introduction of non voting shares, inter corporate

investments within the limits specified under section 372A to enable it to over

come liquidity, domestic financial institutions and safe guard of new article, are

different strategic modes adopted by amending charter/constitution of Company

as too, preventive measures for defence or other precautionary measures as

maintaining friction of shares as strongest mood of defense.

ANTI-TAKEOVER AMENDMENT AND FUND RAISING ISSUES

THE GOVERNANCE ISSUE

This part deals with the empirical studies carried to critic over the use of

antitakeover amendment and their rationale in governance of public offering. At

the time of their IPO, the effect of staggered boards on hostile bids, the relation

between poison pills and takeover premia, legislatively imposed staggered

boards, and shareholder voting on staggered boards.

According to an empirical study by Robert Daines and Michael lausner, about

40% of IPO companies have staggered boards.32 Another 20% do not have

staggered boards, but only about 10% of the companies have stricter

antitakeover defenses, such as dual-class stock, and none restrict the ability of

boards to adopt a poison pill make it difficult to remove directors between annual

meetings.33 About 30% of the companies permit removal of directors between

annual meetings, thereby basically adopting a shareholder choice regime. Only

about 10% of the companies have stricter antitakeover defenses, such as dual-

class stock, and none restrict the ability of boards to adopt a poison pill.

It is noteworthy that, for a long time, it was widely believed that the governance

structure at the IPO stage reflects the terms that maximize the value of the

company.34 In the 1980s, mainstream academic opinion took it as a given that








governance rules set at the time of an IPO are likely to be efficient and was

distrustful of rule changes after a company had gone public ("mid-stream"

changes).35Academic opinion started to shift in the late 1990s.

The Factors :

The findings that IPO charters regularly include antitakeover provisions

brought to the fore the inconsistency of two cherished academic views: the

efficiency of the IPO market and the inefficiency of antitakeover

provisions. Increased stock ownership by institutional investors arguably

improved the quality of voting decisions. Academics noticed that, although

investors regularly purchase shares of companies with antitakeover

provisions at the IPO stage,36 they often vote against new antitakeover

provisions mid-stream. Thus, Email from antitakeover devices are

correlated to the average number of parties making acquisition bids in a

firm's history. They argue that a target needs less bargaining power when

it can entice a competing bid and use the average number of bidders in a

target's industry is a proxy for competition. They find that antitakeover

defenses are positively correlated with the average number of bidders,

which is inconsistent with their interpretation of the bargaining power

theory. However, as discussed, the extent of potential competition is only

one of several factors that determine the optimal selling strategy and the

average number of bidders in an industry is, at best, a rough proxy for the

degree of competition for a specific target. An empirical research

conducted by Daines and Klausner, try to test the validity, of the

bargaining hypothesis by examining whether the antitakeover devices are

correlated to the average number of parties making acquisition bids in a

firm's history. They argue that a target needs less bargaining power when

it can entice a competing bid and use the average number of bidders in a

target's industry is a proxy for competition. They find that antitakeover







defenses are positively correlated with the average number of bidders,

which is inconsistent with their interpretation of the bargaining power

theory. However, as discussed, the extent of potential competition is only

one of several factors that determine the optimal selling strategy and the

average number of bidders in an industry is, at best, a rough proxy for the

degree of competition for a specific target.37 Structure at the IPO stage

reflects the terms that maximize the value of the company. In the

Antitakeover rules and are set at the time of an IPO are likely to be

efficient and was distrustful of rule changes after accompany had gone

public ("mid-stream" changes).38

Its one of the defense has, improving corporate governance could be a strategy

for outperforming competitors in financial markets throughout world in India under

listing agreement the amendment rule are mentioned which are to be necessarily

followed by the Companies. Rather antitakeover are distinct on that issues.

ANTITAKEOVER AMENDMENTS VIS-À-VIS CORPORATE POLICY

The effects of antitakeover statutes on firm leverage were studied by Garvey and

Hanka,39 in their empirical studies, the analysis was based on a sample of 1,203

firms and covering data for the period 1983 to 1993. It states about the first-

generation antitakeover laws that in Edgar v. MlTE were ruled to be preempted

by the federal 1968 Williams, Act. In 1987, the Supreme Court reversed in

Dynamics v. CTS. ruling that state antitakeover laws are enforceable as long as

they do not prevent compliance with the Williams Act. After all this ruling, a

majority of the states passed new anti takeover statutes between 1987 and 1990.

The second generation of laws with a control sample of firms in states without

such laws. Protected firms substantially reduced their debt ratios compared to

the control group over a period of 4 years. The results arc not int1uenced by

variations in size, industry, or profitability. In their research analyses they found








weak evidence that protected managers undertake fewer major restructuring

programs.40 They also founded that firms eventually covered by antitakeover

legislation used greater leverage in the years preceding the adoption of the

statutes. This is further evidence of the substitution between increased leverage

and protection by the state antitakeover laws. The impact of antitakeover

amendments on the financial performance of the firm, the main object is

benefiting financial attributes before and after the amendment adoption.

Specifically, pre- antitakeover variables based on 3-year averages financial

attributes prior to the antitakeover amendment were compared to the post-

announcement variables in each of the 5 years after the adoption. Four

categories of financial performance were used in the analysis) income (ratio of

operating and net income to total assets). expenses (ratio or operating and

overhead expenses to sales), investment (ratio of R&D and capital expenditures

to sales) and debt (ratio of debt to total assets). Raw and industry-adjusted data

changes were analyzed.41 Overall more specifically analyzed it can be correctly

said that the effect of antitakeover amendments, or shark repellents, on long-

term managerial decision making,42 it can be argued that amendment, do help

raising falling R& D by implementing antitakeover amendments.

ENVIRONMENT BUILDING VIS-A VIS DEFENCE MECHANISM

"To throw your hat in the ring" is for valuation to be a main concern which asks

for the quality defence mechanisms will be helpful in protection hostile takeover

environment. The side regulations and laws also plays a major role in domestic

hostile takeover protection; now quality question that arise before us is under

which two major characteristics first is under the lights of games acquisitions

which is played for valuation and defence mechanism for better value. Perhaps

its does not means that hostile takeover do not create value; it can be said that

there is no provision under the Takeover Regulation code of India for the hostile

takeover control, and question yet prevails in public M&A regime which need to








be addressed. Under the code there is no provision to protect hostile acquisition

almost nothing; a principle which attracts prevails under takeover code and its

combination is social, economic and financial mixture under the code. There are

anomalism's in the takeover regulation remains and for sound sophisticated and

quality M&A deals the code requires to resolve all the undesirable cookies, and

what I personal feel is that if all theses hurdle, and clogging; are resolved will

open a ways for sound dealings with takeover which need to be deliberatively

dealt with regards to national security and in providing more sound environment

and which shall also provide for quality public M&A.

CONCLUSION :

Overall analogy can be which drawn from the above discussion that considering

many of the economic and legal issues concerning takeovers, the question

remains: What result? It is often considerably easier to point out problems than it

is to provide effective solutions. Yet, the evidence indicates that Indian

legislatures are doing something very similar providing solutions to ill-defined

problems. The absence of appropriate legislation under Indian corporate laws

can be felt, SEBI takeover code with regard to dynamic framework in providing

strong propos, defensive strategic against the corporate rider. The perceived

problems in the market for corporate charters provide an opportunity for special

interests to impose their preferences on the entire nation with the adoption of

preemptive. Is strongly arguable!

_____________________________

* BA, LLB (Bachelors in Law) Hons.





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