BIM38280 - Wholly & exclusively: companies: take-over bids: evidence

Establish and consider all of the available evidence

The nature of the points made in the company’s public utterances is important, but may not be decisive. Defence documents issued to existing shareholders will almost invariably argue that the price offered for the company’s shares is inadequate. But, the company may contend that the maintenance of shareholder loyalty was simply a means to the end of preserving the trading operation. And to that end it was necessary to emphasise issues of price.

Conversely, any submissions to the Competition Commission (formerly the Monopolies and Mergers Commission) will tend to emphasise the threat to the company’s trade posed by the acquirer; for example the latter may be characterised as an asset-stripper. Again, however, such submissions may be no more than a means to the end of ensuring that there is no change in the ownership of the shares.

You need, therefore, to identify those statements of purpose, which are no more than tactical points made in the take-over battle and to penetrate deeper to the true purpose(s) of the directors in authorising expenditure to resist the bid.

Direct evidence

As well as the circulars sent by the target to its shareholders you should critically examine:

• correspondence and notes of oral discussions between the senior executives of the company and its professional advisers;
• internal company memos and minutes of meetings, particularly involving those in decision-making positions;
• the purposes of key personnel, preferably face-to-face.

External evidence

There are other sources relevant to the purposes of the bidding company apart from their portrayal by the potential target. The bidder’s own public statements and bid literature, including circulars sent to the target’s shareholders, will be of interest. So will be the perceptions of financial commentators at the time. These will reflect the way the bidder has managed any other acquisitions.

The outcome of the bid can also be relevant. If, for example, the target subsequently recommends a higher offer from the same bidder, is the contention that its sole purpose in incurring the initial expenditure was to protect its trade plausible? Where an offer from a third company, possibly a ‘white knight’, is accepted, are the grounds for so doing compatible with the alleged trade purpose in fighting off the first bidder?