This document discusses strategies for hostile takeovers and provides examples. It begins by defining a takeover as acquiring shares or control of a target company. There are two main types of takeovers - friendly/negotiated and hostile. A hostile takeover occurs when a board rejects an offer but the bidder pursues it anyway. Common hostile takeover strategies include tender offers, creeping tender offers, and proxy fights. The document also profiles typical hostile takeover targets and discusses several case studies of hostile takeovers in India.

1. Hostile Takeovers Strategies
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Hostile with an analysis of Case Studies

2. What is Takeover???
A takeover is virtually the same as an acquisition.
The term acquisition under SEBI Takeover Regulations is defined
as
“ directly or indirectly, acquiring or agreeing to acquire
shares or voting rights in, or control over, a target
company”
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3. Kinds of Takeover
Friendly or
Negotiated Takeover
Hostile Takeover
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4. Friendly or Negotiated Takeover
Friendly takeover means takeover of one company by change in its
management & control through negotiations between the existing
promoters and prospective investor in a friendly manner. Thus it is
also called Negotiated Takeover. This kind of takeover is resorted
to further some common objectives of both the parties.
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5. Hostile Takeover
A takeover would be considered "hostile" if
• the board rejects the offer, but the bidder continues to pursue it, or
• If the bidder makes the offer without informing the board beforehand.
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6. Types of Hostile Takeover
• Tender offer: The acquirer makes a public offer at a
fixed price above the current market price.
• Creeping Tender offer: Slowly buying enough shares
from the open market to effect a change in management.
• Proxy Fight: The Acquirer tries to persuade enough
shareholders, usually a simple majority, to replace the
management with a new one which will approve the
takeover.
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7. Framework
• A hostile tender offer begins with an unsolicited offer by a bidder to purchase
a majority or all of the target firm’s shares.
• The bidder will set the offer for a particular period of time, at a price, and with
a form of payment, and may attach conditions to the offer.
• The target will ordinarily undertake evasive maneuvers.
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8. Profile of the Target of a hostile bid: Negative
• Less promoter holding usually less than 25%.
▫ Mahan Industries Ltd – 1.48%
▫ Esaar (India) Ltd – 3.86%
▫ Tricom India Ltd – 6.03
▫ Global Securities Ltd – 9.14%
▫ Nuchem Ltd – 9.65%
▫ Pasupati Fincap Ltd – 11.51%
▫ Channel Nine Entertainment Ltd – 20.58%
• Less market value and high asset base.
• Higher liquidity in share.
• Unused debt capacity.
• Lower sales growth, returns on equity, and price/earnings ratios.
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9. Profile of the Target of a hostile bid: Positive
• Targets present attractive investment opportunities owing to
 strong growth prospects or
 synergies.
▫ There is little evidence of poor performance prior to bids.
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10. Players in the Game
• Bidder: Entrepreneurs who discover profitable opportunities.
• Target: The profitable opportunity
• Free riders: Other shareholders who profit by the actions of the bidder.
• Groups within the target i.e. Directors, Majority & Minority Shareholders.
• Other potential buyers: white knights and white squires
• Arbitrageurs
• Group of Investors
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11. Designing a Hostile Takeover
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Organize Yourself
Understand your
Target
Evaluate Legal Pitfalls
Build backup
Disarm Defenses

12. Strategies of Hostile Takeover
• Market Accumulation followed by an Open Offer;
• Negotiated Deal with Financial Institutions followed by an Open Offer;
• Negotiated Deal with a breakaway Promoter Fraction followed by an Open
Offer;
• Direct offer to Shareholders.
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13. Legal Process under SEBI Takeover Regulations
No preconditions for making Hostile Takeover.
Any Person with an intent to acquire the Target Company can make Hostile Bid.
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14. SEBI Takeover Regulations, 2011
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15. Initial Threshold & Creeping Acquisition
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3(1)
Acquirer along with
PAC
25% or more
shares or voting
rights
3(2)
Acquirer with PAC
holding 25% - 75%
Creeping
Acquisition - 5% in
each F.Y.

16. Change in Control
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Through
Open
Offer Only
Irrespective of
acquisition of shares
or voting rights
• Through
Shareholder
Approval
SEBI (SAST)
Regulations,
2011

17. Voluntary Open Offer
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• Prior holding of atleast 25% or more shares;
• No acquisition during the preceding 52 weeks without attracting the
obligation to make a public announcement.
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Eligibility
• The aggregate shareholding not exceeds the maximum
Condition permissible non-public shareholding.
• No further acquisition of shares for a period of six months after
completion of the open offer except by way of another voluntary
open offer or competing offer.
Restriction

18. Minimum Offer Size
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Mandatory
Offer -
26%
Voluntary
Offer -
10%

19. Process Chart
Particulars Timeline
Public announcement through notice to Stock Exchange X
Detailed Public Statement in newspapers X+5 Working Days
Draft letter of offer to be submitted to SEBI and sent to
Target Company
Last date of Competing offer X +15 Working Days
Receipt of comments from SEBI on draft letter of offer X+25 Working Days
Upward revision in offer X+33 Working Days
Comments on the offer by independent directors of Target
Company
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(Legal)
X+10 Working Days
X+34 Working Days
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Issue of advertisement announcing the schedule of
activities for open offer
X+36 Working Days
Date of opening of offer X+37 Working Days
Date of closing of offer X+46 Working Days
Payment of Consideration X+56 Working Days
Promoters of Target
Company or any
other person with or
without promoters
support can make a
competitive Bid as a
defensive Strategy

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Warning Bells
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21. Signals for Target Company
• Minority shareholders starts showing interest and asking for copies of certain
documents;
• The company and its executives become the target of negative publicity.
• Increase in the number of small transaction in the shares of the Company;
• Other companies in your industry have been attacked by the raiders;
• Voluntary offers to sell the shares in the company have been received during the
last few months.
• Law suits, often with absurd claims for protection of the rights of minority
shareholders.
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22. 9/23/2014
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23. Swraj Paul Vs. Escorts, DCM
Shriram
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24. Parties Involved
• Target Company 1 - DCM Limited headed by Bharat Ram and Charat Ram.
• Target Company 2 – Escorts controlled by H.P. Nanda and Family.
• Acquirer – Swraj Paul through CAPARO Group.
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25. Background
• The Shri Ram family owned 10% stake in DCM and Nanda’s
owned < 5% stake in Escorts.
• Even this relatively small holding gave them a controlling interest
because of the support given by public financial institutions and
the backing, cultivated over the years, of politicians and the
officialdom.
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26. CAPARO attempt to Acquisition
13 companies of CAPARO Group (belongs to Swraj Paul) has acquired
80,000 equity shares of DCM and 75,000 of Escorts.
The above acquisition has exceeded the permissible Non resident Investment Limit of 5%
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27. DCM & Escorts Reaction
• The management of DCM and Escorts refuse to register the shares.
• Further they have brought to the notice of RBI, the violation done by the Company belonging to
CAPARO group i.e.
▫ Violation of circular dated May 2, 1983 after which no non-resident could invest and hold more than
5% of Indian Company share capital.
▫ No permission obtained from RBI for Investment (this was the reason why Swraj Paul did not
approach CLB when Escorts and DCM refuse to register the shares.)
• The RBI could give its permission only after it has satisfied that CAPARO was a genuine company with
atleast 60% Non- Resident Indian shareholding.
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28. Political Move in favour of Swraj Paul
• Mr. Paul Joseph, joint controller of DSE sent a communication to all Stock
Exchanges throughout the country to step up the registration of shares in
CAPARO Company name
• It brought a variety of pressure to bear on Dr. Manmohan Singh to clear
CAPARO purchases retrospectively.
• Later on RBI refer the matter to the Ministry of Finance for the final decision.
• The finance Ministry cleared the CAPARO group acquisition for investment
upto 1% each in Indian Company.
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29. Political Move in favour of DCM
Shri Ram family members use their connection in Central
Government to persuade Paul to give up his bid through a number
of private meetings.
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30. End Result
Ultimately Both DCM and Escorts management were able to abort
the Takeover bid and CAPARO group lost on account of
controversial purchase of shares.
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31. 9/23/2014
Guy Dolle Lakshmi Mittal
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32. About the Companies
Mittal Steel
• Based in Netherlands
• Founded in 1989 as Ispat International in Sumatra, Indonesia,
• It was the largest producer of steel in terms of volume.
Arcelor
• Second largest producer of steel in terms of turnover and output.
• Created by the merger of three companies:
▫ Aceralia (Spain)
▫ Arbed (Luxembourg)
▫ Usinor (France)
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33. The Bid…
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On Jan 27, 2006, Mittal steel announced a hostile bid for Arcelor
Mittal Steel offered €28.21 per Arcelor share, i.e. a premium of 27%
per share
• A minimum acceptance of more than 50%
• Mittal steel shareholder approval and the Mittal family undertaking to vote in
favour of the transaction
• No disposal or acquisition from Arcelor was allowed during the offer
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The offer was subject to three condition
The offer from Mittal consisted of a mixture of cash and stock

34. Motive Behind Takeover Bid
• Acquisition would terminate its biggest competitor dominating the
steel industry.
• Acquisition helps in companies improving their
▫ sourcing of raw materials;
▫ access to more markets;
▫ better utilization; and
▫ better efficiency.
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35. Reaction to the Bid
• The bid from Mittal Steel caused a lot of opposition and many political party opposed
the Hostile Offer -
▫ The prime minister of Luxembourg said in the press that the bid was
“incomprehensible” and encouraged initiatives to stop the takeover by “all necessary
means”.
▫ French Prime Minister & Finance Minister questioned the bid’s ‘industrial logic’ as well
as pushing for a mobilization of ‘economic patriotism’.
▫ Spain’s Finance Minister announced its opposition against the bid and the Belgium
government appointed Lazard in order to conduct a more thorough analyze of the bid.
• The board of Arcelor stated that
▫ The company did not share the same strategic vision, business model or values as Mittal
Steel
▫ Deal would have risking severe consequences on the group, shareholders, employees
and its customers
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36. Indian Government Initiative
The Indian government felt need to protect and support him, thus
resulting in that the Indian Trade Minister, Kamal Nathn, publicly
accused the European governments of being racist and
discriminating.
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37. Takeover Defenses employed by Arcelor
• Developed a communication plan, ‘Project Tiger’, to persuade its shareholders that the company
was better off without Mittal Steel’s involvement and to not sell their shares to Mittal Steel.
• Introduced a ‘2006-2008 plan’ with the aim to ‘maximize value creation for shareholders’ and the
board of Arcelor even promised an increase in results by 24 per cent and generous bonuses.
• Arcelor released a 13 Billion Euros merger plan with Severstal, a Russian company. This merger
would have made the new Severstal-Arcelor entity too big for Mittal Steel to buy.
• Communicated that the French government was against this deal as it was concerned about the
dismissal of about 28000 Arcelor employees
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38. Market Reaction on the possible merger of Severstal-
Arcelor
The possible merger of Severstal and Arcelor did not get positive
reactions from analysts, who described a merger with Mittal Steel as a
more attractive and reasonable option than merging with Severstal.
Severstal-Arcelor would geographical have been mainly restricted to the
EU, Russia and Latin America whereas a merger with Mittal would
contribute to a greater global presence, a larger production capacity and
a greater self-sufficiency for iron ore
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39. Conclusion
Mittal agreed to pay €40.27 for each Arcelor share, almost double the
amount they first offered, and a merger between the two giants
occurred.
Furthermore, Arcelor had to pay Severstal a fine of €140 million, as a
result in failing to close a deal after negotiations with the Russian giant
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40. Great Offshore –
Bharati Shipyard V/s ABG Shipyard
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41. About the Parties Involved
• Great Offshore Limited (Formerly known as GOL Offshore Limited) – Target Company
▫ Great Offshore Limited (GOL) was hived off from Great Eastern Shipping Compnay
Limited and Incorporated as a separate company under the supervision of Mr. Vijay
Kantilal Sheth.
• Bharati Shipyard Limited (BSL) – Bidder 1
▫ Incorporated on June 22, 1976 and Promoted by Mr. P.C. Kapoor and Mr. Vijay Kumar.
• ABG Shipyard Limited (ABG) – Bidder 2
▫ Incorporated on March 15, 1985 as the flagship company of the ABG Group and engaged
in manufacturing of variety of ships.
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42. Bid by BSL
 BSL acquired 14.86% equity through sale of pledged shares;
 On June 3, 2009, BSL made a Voluntary Open Offer for 20% at a price of Rs. 344 per
share.
 Later they increased their holding to 23.23% and increased the offer price from Rs. 344
to Rs. 405, then to Rs. 560 and finally to Rs.590 per share;
 Shares acquired through Open Offer – 21.02%, shareholding as on date is 49.72%.
 Initially Open offer were made under Regulation 10, Later on BSL modified it to include
Regulation 12 as well. However the same was rejected by the SEBI and directed it to
continue with Regulation 10.
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43. Bid by ABG
 Eleventh Land Developers Private Limited (ELD) along with ABG Shipyard Limited gave
a Counter Offer for 32.12% at Rs. 375 per share on June 23, 2009;
 They slowly increased their stake to 8.2% and increased the Offer Price from Rs. 375 to
Rs. 450 and then to Rs. 520 per share;
 As soon as Bharti Shipyard hiked its Offer price to Rs. 590, they decided to quit and sold
its 8.2% stake in market. Nevertheless, the open offer of ABG continued at a price of
Rs.520 a share and even received 15.2% shares in the Offer;
 ABG made around Rs. 50 Cr. By selling shares in market at higher price;
 Shareholding as on date - NIL.
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44. End Result
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BSL ABG
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Acquired Target Company
Made profit of around Rs. 50
cr. By selling shares in
market at higher price

45. Orissa Sponge Iron and Steel Limited –
Bhushan Power and Steel Limited v/s Mount Everest Trading
and Investment Limited v/s Bhushan Energy Limited
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46. Parties Involved
• Target Company - Orissa Sponge Iron and Steel Limited
• Acquirer - Bhushan Power and Steel Limited along with Titanic Steel Industries Limited
and Olympian Finvest Limited (“PACs”)
• Competitive Bidder 1 – Monnet Ispat & Energy Limited along with Torsteel Research
Foundation in India and TRFI Investment Private Ltd. ('PACs')
• Competitive Bidder 2 - Bhushan Energy Limited along with Mr. Neeraj Singal and other
PACs.
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47. Bid by Bhushan Power and Steel Limited (Acquirer)
• Pre holding of the Acquirer - NIL
• On February 07, 2009, It has given voluntary offer for the acquisition of 26% shares in the
Target Company at a price of Rs. 300.
• They later became dormant and did not fought further
• Post Shareholding of the Acquirer - NIL
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48. Bid by Monnet Group (Competitive Bidder 1)
• It had held around 38.64% in the Target Company along with the Promoters who are PAC with it.
• It joined hands with the promoters and entered into a Share and warrant purchase agreement to
acquire 27.10% Equity stake and warrants held by promoters.
• It then made an offer to acquire 20% of the Emerging Voting Rights at a price of Rs. 310 per
share which was revised to Rs. 370 per share.
• Shares acquired through Open Offer – 5.42%.
• Post Open Offer Shareholding was 71.16%.
(The percentages are calculated on the basis of equity share capital as on the date of PA without taking into effect the conversion of
warrants done at a later stage)
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49. Bid by Bhushan Energy Group (Competitive Bidder 2)
 It had held approx. 15% share and During the Open Offer it acquired 6.10 % shares
 It had made Second Competitive Offer to acquire 20% of the Emerging Voting Rights at a price of Rs.
330 per share which was further revised to Rs. 360.
 Shares acquired through Open Offer – 0.02%,
 Post Open Offer Shareholding was 17.12%.
 35,00,000 Warrants held by the Bidder were under Litigation. Vide SEBI order dated June 12, 2014 the
matter has been resolved and it was held that pursuant to the conversion of above warrants there could
be no change in control.
(The percentages are calculated on the basis of equity share capital as on the date of PA without taking into effect the conversion of
warrants done at a later stage)
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50. END RESULT
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Though the open offer has been completed. However the battle
between Monnet Group and Bhushan Energy Group is still going
on and involved various issues.
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51. As a Company How you can Defend Yourself
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52. 9/23/2014
White Knight
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53. The target company or its existing promoters enlist the services of another
company or group of investors to act as a white knight who actually takes over
the target company, thereby foiling the bid of the raider and retaining the control
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of existing promoters.
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White Knight

54. ITC vs EIH
In 2010, Reliance Industries played white knight to the
promoters of EIH by buying 14.1% in the flagship hotel
chain. The move was seen as an attempt to thwart the ITC
group which had gradually raised its stake in EIH to 14.8%
over the years.
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55. Highlights
• ITC acquired 14.98% shares of EIH and planning to go beyond 15% by
making open offer.
• To thwart this threat for acquisition, the promoters of EIH offered their 14.2%
stake to Reliance and the offer was accepted by Reliance.
• In this way, Reliance ruins ITC dream of hostile takeover of EIH.
• As on date, Reliance holds 18.53% and ITC holds 15.98% stake in EIH.
• Ms Nita Ambani and confidante Manoj Modi are on the Board of EIH.
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56. RK Damani vs VST Industries
In 2001, stockbroker Radhakishen Damani made an
open offer for BAT-controlled VST Industries, but
was foiled by ITC which entered the fray as a white
knight, with support from BAT. Damani still holds
26% in VST.
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57. Highlights
• Mr. Damani, though his investment arm Bright Star Investments acquired 14.97% stake in
VST.
• In 2001, Hostile Bid for acquisition of 20% stake at a price of Rs. 112 per share.
• ITC enters the Battle as White Knight and made the offer at a price of Rs. 115 per share and
further increased to Rs. 126 per share.
• Damani hiked the price to Rs. 151 per share and size to 30%.
• However, Damani fails to win over the battle as Banks, Fis, Insurance company holding 22%
have not give their support to him.
• As on date, he holds 25.95% stake in VST Industries.
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58. 9/23/2014
Greenmail
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59. Greenmail is a strategy where the target company agrees to buy back the
bidder's stockholding in the target company but at a substantial premium to
the fair market stock price to avoid the hostile takeover. This tactic shall be
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used only after a cost-benefit analysis. This is quite similar to targeted
repurchase strategy of avoiding hostile takeover.
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Greenmail

60. Abhishek Dalmia vs GESCO
In 2000, Abhishek Dalmia cornered 10.5% in the
Sheths-controlled GESCO Corp and made an open
offer for another 20%. But rather than dislodging the
existing promoters, Dalmia sold his stake to them for
profit.
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61. Arun Bajoria vs Bombay Dyeing
In 2000, Kolkatta-based Arun Bajoria bought 15% in Bombay
Dyeing, and threatened to make an open offer to public
shareholders. He finally sold out his stake to the Wadias-- the
promoters of Bombay Dyeing--at a profit.
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62. Other Defenses against Hostile Takeover
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63. Non Voting Stock
Non-voting stock is that stock which gives the
shareholder nil voting rights on the matters relating to
the management of the company. This can be used as
a strategy to avoid hostile takeovers if a company
issues all the voting shares to its promoters and offers
only non-voting shares to the public.
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64. Crown Jewel Defense
Crown jewel defense is a strategy where the target company spins
off its major attractive assets to new company specially formed for
this purpose. This makes the target company less attractive for the
hostile acquirer. Crown jewel defense is a useful tactic to avoid
hostile takeover especially for those companies where its assets
backing is major strength.
This defense is not practical in India because of Reg. 26(2)(a) of Takeover Regulations, which restricts the
BODs of Target Company & any of its subsidiary from alienating any material assets outside the ordinary
course of business without the approval of shareholders of the Company by Special resolution.
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65. Gray Knight
In this tactic, the services of a friendly company or a group of
investors are engaged to acquire shares of the raider (Listed
Company) itself to keep the raider busy defending himself and
eventually force a break.
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66. Pac-man defense
Pac-man defense is a strategy where the target company
starts buying the shares of its acquirer company with the
ultimate objective of taking over its acquirer. Although the
effect will almost be the same, the matter is just of
acquiring controlling authority. This strategy was used in
Bendix Corporation Vs Martin-marietta in August 1982.
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67. Highlights
• Bendix Corporation Vs Martin-marietta was one of the most interesting battle in U.S. Economic History.
• In August 1982, Mr. William Agee, chairman of Bendix made a bid for MARTIN-MARIETTA which was
rejected by it.
• As a defense, Martin-marietta initiated its own tender offer for Bendix.
• Both the firms are engaged in various defenses including litigations.
• At last, Mr. Edward Hennessey, chairman of Allied Signal was introduced as “White Knight” of Bendix
and won control over it.
• Mr. Hennessey signed an agreement with Martin-marietta to exchange shares.
• Martin-marietta remained independent and Mr. Hennessey end up with valuable Bendix assets.
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68. Poison Pill
Poison pill is a strategy where the target company issues low-priced
preference shares to its shareholders. This increases the total
issued share capital of the target company and consequently makes
it more costly for the acquirer to acquire the target company.
Although this strategy may cause loss to the target company but this
strategy is sometimes very effective in avoiding the hostile takeover
as in Saurashtra Cement Case where the company allotted shares
to its promoter and other foreign companies and expand its capital
base thereby made it more costly for the Acquirer as well as made
the offer invalid as it was not made on the expanded capital.
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69. Suicide pill
This is the extreme version of poison pill where the
tactics adopted by the target company to avoid
hostile takeover results in self-destruction. But this
defense is not practical and thus not normally
resorted to.
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70. Positive Outcome of Hostile takeovers
• Results in disclosure of true value of the Company.
• Control would lie with the person who values it most. It might be either the existing
promoters or the New Hostile Bidder.
• Results in an efficient allocation of resources.
• Shareholders gets an opportunity to decide whether to sell their shares or continue
with the Company.
• Pressure on the management to work efficiently and thus contribute in Corporate
Governance.
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71. Reason for Non-Popularity of Hostile Takeover in India
Hostile acquisitions have limited reference in Indian corporate history
• Dominant promoter shareholding
• Takeover Regulations favor consolidation of holding by persons in control
• Financial institutions as ‘friendly’ shareholders
• Domestic acquirers have limited access to funding
• Historical impediments to acquisitions by foreign entities
▫ Sectoral caps
▫ FIPB/RBI approval requirements
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72. 9/23/2014
Pavan Kumar Vijay
Corporate Professionals Capital Private Limited
D-28, South Extension –I, New Delhi-110 049 Ph: +91.11.40622200; Fax:
+91.11.40622201; E: info@takeovercode.com
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