!1 LEGAL ASPECTS OF TAKEOVER DEFENCE TACTICS: A Comparative Analysis between the English and the US Systems A THESIS SUBMITTED IN FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY IN LAW ELSHAD HUSEYNOV INSTITUTE OF ADVANCED LEGAL STUDIES (IALS) UNIVERSITY OF LONDON 2016 !2 DECLARATION BY CANDIDATE I hereby declare that this thesis is my own work and effort and that it has not been submitted anywhere for any award. Wherever other sources of information have been used, they have been acknowledged. Signature: ………………………………………. Date: …………………………….…………… !3 Table of Contents ACKNOWLEDGEMENTS......................................................................................................... 8 LIST OF ABBREVIATIONS.................................................................................................... 10 1. Introduction.......................................................................................................................... 11 2. Literature Review................................................................................................................ 26 3. Objectives of the Study........................................................................................................ 31 CHAPTER 1: A comparative study between the English and the US practices of acquisitions and mergers............................................................................................................ 41 1.1 Introduction......................................................................................................................... 41 1.2 The Differences between the Takeover Regulations of England and the US.................... 43 1. 3 Why Takeovers?................................................................................................................. 48 1.4 The Modes of Takeover Regulation.................................................................................... 49 1.5 Some of the Causes of Differences between the US and the UK Defences against Takeover Bids............................................................................................................................................ 53 1.5.1 The US position............................................................................................................ 53 1.5.2 The English Position..................................................................................................... 57 1.5.3 Summarising the Similarities and Difference between the two systems...................... 64 CHAPTER 2: An Examination of the usual rationale behind Acquisitions and Mergers.... 70 2.1 Introduction..................................................................................................................... 70 2.2 Acquisitions..................................................................................................................... 70 2.3 The differences between acquisitions and mergers......................................................... 72 2.4 Synergy............................................................................................................................ 73 2.5 Types of Acquisitions...................................................................................................... 75 2.6 Reasons for Acquisitions................................................................................................. 79 2.7 The stages of acquisitions................................................................................................ 83 2.8 Strategic Alliances ..........................................................................................................89 2.9 Critical Analysis on the Types of Take Overs.................................................................. 90 !4 2.9.1 Friendly-Takeovers....................................................................................................... 90 2.9.2 Reversed-Takeover....................................................................................................... 91 2.9.3 Back Flip Takeover..................................................................................................... 92 2.9.4 Hostile-Takeover.......................................................................................................... 93 2.10 Due Diligence................................................................................................................ 94 2.10.1 Application of Due Diligence ..................................................................................101 2.10.2 Financials................................................................................................................. 104 2.10.3 Intangibles................................................................................................................ 105 2.11 Shareholders ‘Interests................................................................................................. 108 2.11.1 Majority Shareholders interests................................................................................ 109 2.11.2 Minority Shareholders Interests................................................................................ 110 2.12 An Analysis of the Rationale of Takeovers.................................................................. 111 2.13 Analysis of the Rationale of Takeover Defences......................................................... 121 2.14 The Issue of Corporate Social Responsibilities........................................................... 127 2.15 Conclusion................................................................................................................... 128 CHAPTER 3: Historical growth and development of Acquisitions, Mergers, and Defences thereto......................................................................................................................................... 130 3.1 Introduction....................................................................................................................... 130 3.2 Historical Background....................................................................................................... 130 3.2.1 The First Period of Takeovers (1887 – 1913)............................................................. 130 3.2.2 The Second Period of Takeovers (1914 –1944)......................................................... 133 3.2.3 The Third Period of Takeovers (1945-1964).............................................................. 135 3.2.4 The Fourth Period of Takeovers (1965-1980)............................................................ 136 3.2.5 The Fifth Takeover Period (1981-1989)..................................................................... 143 3.2.6 The Sixth period - Takeovers in Modern Times (2000 – 2016)................................. 145 3.3 Some Salient Trends of Takeover Transactions in England.............................................. 148 3.4 Some Salient Trends of Takeovers in the US.................................................................... 160 3.5 Conclusion......................................................................................................................... 174 CHAPTER 4: Types of common takeover defence tactics in England and the US............ 175 4.1 Introduction....................................................................................................................... 175 !5 4.2 Pre-Take-over defence tactics – “Preventive Measures”................................................... 177 4.2.1 Golden Parachutes...................................................................................................... 180 4.2.2 Shark Repellents......................................................................................................... 184 4.2.3 Strengthening a Board’s defence................................................................................ 187 4.2.4 Limiting shareholders’ action..................................................................................... 189 4.2.5 Charter amendments................................................................................................... 189 4.2.6 Control over the register............................................................................................. 191 4.2.7 Control over the debts................................................................................................. 192 4.2.8 Cross-shareholding..................................................................................................... 193 4.3 Post –Takeover Defence Strategies................................................................................. 194 4.3.1 Poison pills................................................................................................................. 195 4.3.2 The effects of poison pills on companies................................................................... 201 4.3.3 Pac man....................................................................................................................... 210 4.3.4 Green-mail.................................................................................................................. 212 4.3.5 White knight............................................................................................................... 217 4.3.6 White Squire............................................................................................................... 231 4.3.7 Litigation...................................................................................................................