Now we proceed with the takeover defenses that can be used after the offer has been made. So, this is Takeover Defenses Part Three, Post Offer, Actions. Well, first of all, this is greenmail. Well, you know that greenmail looks very much like blackmail. Although it doesn't seem to be that offensive. So greenmail is the following situation. Let's say someone made an offer for your company. But then you buy a large block of stock from some specific owner, and by owning that you prevent this block from going to the potential bidder. Now sometimes classic examples of greenmail may be as follows. Let's say there's competitive bidding by the management and by the tendering company and lets say now the management owns 49% and the bidder owns 49%. There's one person who owns 2% of the stock. Now this person can clearly ask for a much higher premium than all other shareholders. Because they say, well, whoever gets my block of shares wins over and therefore, that is why it's very close to blackmail. But sometimes, if you as a company, you make sure that you own these specific blocks of stock by having purchased them, then this is a really effective takeover defense. Then the next this is kind of funny, this is Pac-Man defense. Let's say the company comes in and makes an offer for your company. But you make an offer directly to the shareholders of the bidding company. That doesn't matter that you might be much smaller, because if this is the thing that is potentially creating value, then you will be able to raise financing. But that sort of undermines the position of the bidder because now they have to worry about the fact that they themselves can be the object of a tender offer. Now, the next very widely used thing is the so called, white knight or white squire. It's the same stuff, but white knight normally, this is the case when this white knight gets control and white squire gets the smaller fractional share. Let's say someone comes in and says I would like to take your company over. And you, for any reason, you don't like these people, maybe they are too aggressive, maybe these people are positive to throw you away if you are the manager. And maybe you as the management would be feeling much better if you sold your company to someone else who is more friendly with respect to you. So this is called white knight. So you approach these people and say, well, we're attacked by these people, maybe we will sell to you. And, well clearly that should be done on right terms because you cannot sell at discount then the people would say this is unfair treatment. You cannot sell at the premium because then they would say that they are treated unfairly. But again, there are negotiations and this is sort of a friendly transaction. And that may well be the case that you can send off the hostile cash tender offer by selling this to a white knight. Maybe even stock for stock with some higher premium, but without cash. Well, there's a universe takeover defense that is, litigation. And that goes for various groups of stakeholders, and the key story here is that until the case is solved, until there is a ruling, then the transaction cannot be completed. So clearly you can always, let's say, you made this other offer, and you sue them for something, for some unfair treatment, for some aggressive ideas, and so on and so forth. So litigation is a universal way that is used by all parties in this transaction. And now I would, Point out two very widely used approaches that are so-called, asset restructuring, And liability restructuring. And again that is the area of these notorious crown jewels. So let's say you made an offer to buy my company. And then in my company there are very special assets, and without these assets my company is worth much less. Let's say I'm a pharmaceutical company. And I have a research department that is staffed not only by very hard working people, but a couple of Nobel Prize winning chemists. That are maybe kind of strange and really difficult to cope with, but they sometimes invent some breakthrough drugs. And if, let's say, if these people leave for whatever reason, they will say, we will not work for this company if these new guys come in. Then again this is sort of an exaggerated example but by the same token we don't have to rely on the same people only. You can rely on technology, you can rely on some special assets that you can sell. Because while the offer is being implemented, you have some time. And as a result, the winning bidder can get a company that is worth much less. Or if it's taken to extreme can get only a shell in which all important, valuable, precious staff has already been disposed off. And by the same talking you can discuss liability restructuring. So the share repurchase program that we talked about previously is part of that. So this is a tender that is being implemented and now I do something to take advantage of the fact that now I can get some liabilities and then I retrocedes. I can take away and then the company buys it, it actually sees that the company that they had purchased not only has these valuable assets, but also has some larger liabilities. And that can be a significant burden and in itself, can serve as a takeover defense that is likely to fend off the potential bidder. Now, there are many more specific smaller strategies here. There are many more ways to implement what we have talked about. There are ways to use some special institutions or special schemes that when there is no takeover attempt, they can be used for some other purposes. But then they can be used as anti-takeover defense. For example, employee stock ownership plan. There is a discussion of that in the book but I will not delve deeper on that right now. So that gives you the universe of ideas and let me wrap up this discussion of takeover defenses with what I just pronounced when we started. It is not clear from the very beginning who is the actual beneficiary of the target managements anti-takeover defensive activity. It is not automatically the case of an entrenchment. That may be just a way to make sure that the target shareholders, they get the best price if they participated in this tender offer. So that is an important thing to keep in mind. And then what follows we will talk about some other general approaches to value and to ensuring the interest of these stakeholders. That, although at the first glance, seem to be less direct but they play a very important role in this overall background. We will talk about corporate governance.
