What arguments might be used to persuade shareholders in an acquisition target to reject offers at any price? Are they plausible?
What will be an ideal response?
An enterprise with a long history of underperformance with its present top management team
evidently needs an injection of new skills, insights and commitment. Takeover by another enterprise
is a typical mechanism to achieve this because it is difficult for shareholders to dismiss the entire top
team without engendering a sense of crisis, damaging enterprise value, its external relationships and
internal morale. So one line of defence for the top team is to highlight weaknesses in the skills of its
prospective replacement. The team can predict asset stripping by the new owners, especially if the
transaction has been consummated at below-market value (which the incumbent team often seeks to
inflate by declaring a new vision and strategy for achieving it). They can point to new initiatives
already being implemented that will materially improve performance. However, the evidence is that
arguments by the incumbent team tend to lack credibility when new intentions are revealed only
after a hostile bid has been made, suggesting that it is a rearguard action by executives to safeguard
their jobs and incomes.
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