Take-overs

Press, 19 August 1982, Page 28

Take-overs

Shareholders are sometimes confronted with a take-over bid. It is important to understand what this means, and what shareholders’ rights are.

Take-overs have come under scrutiny lately, especially with regard to the methods used to' achieve them. However, some of the world's great companies have been put together by means of take-overs: General Motors and 1.C.1. come to mind.

In the United Kingdom a Labour government created the framework to facilitate desirable take-overs, thereby showing that take-overs are not necessarily the ugly face of capitalism. In a take-over a person or company acquires control over the assets of another company, either by becoming the ow-ner or by getting control of the company. The bid is the offer or series of offers made to achieve it.

With more than 50 per cent of the shares you can obviously outvote the minority, although for some special resolutions 75 per cent is necessary, and 90 per cent is in many cases desirable.

With a 90 per cent shareholding the remaining 10 per cent may be acquired compulsorily: this is done to get rid of an unwelcome minor-

ity, which may make a regular nuisance of itself. There is a rule of company law that the majority shall not oppress the minority, and the minority may try to use this to be very awkward. One way of obtaining the necessary shareholding is to buy shares quietly in the market. But there may not be enough shares available and in any case it is likely to drive up the price. Companies therefore usually come out into the open and make an offer to all shareholders. In this case they usually have discussions with the directors of the target company first, trying to get their approval so they would recommend the offer. If the bid does not succeed at first the bidder can either give up or try a new approach. As by that time the whole market is alerted, the offer may have to be improved substantially. Devices which have been criticised are quietly buying on the sharemarket either directly or through a "friend," and offering better terms to selected shareholders outside the market. Another device which has' been used is for the bidder to sell some asset to the company to be taken over in exchange for shares which might just tip the balance.