Chapter 6 Common Stocks o Takeovers Periodically, a firm or a wealthy individual who is convinced that the management of a corporation is not fully exploiting its opportunities will attempt a takeover This is frequently done with a tender offer being made by a dibber to a target firm. Before this offer is announced, some of the target firms shares are usually publicly acquired by the bidder in the open market through the use of broker. o White knight: meaning that another firm that is favorably inclined toward current management will be invited to make a better offer to the targets stockholders
Chapter 6 Common Stocks ⚫ Takeovers Periodically, a firm or a wealthy individual who is convinced that the management of a corporation is not fully exploiting its opportunities will attempt a takeover. This is frequently done with a tender offer being made by a dibber to a target firm. Before this offer is announced, some of the target firm’s shares are usually publicly acquired by the bidder in the open market through the use of broker. ⚫ White knight: meaning that another firm that is favorably inclined toward current management will be invited to make a better offer to the target’s stockholders
Chapter 6 Common Stocks o Greenmail: another type of response by management is to pay greenmail to bidder, meaning that any shares held by the bidder will be bought by the target firm at an above-market pnce. back some of its own stock. fin o Repurchase offer. where the irm offers to buy o PacMan defense: where the initial target turns around and makes a tender offer for the initial acquirer o Crown jewel defense; where the target sells its most attractive assets to make the firm less attractive
Chapter 6 Common Stocks ⚫ Greenmail: another type of response by management is to pay greenmail to bidder, meaning that any shares held by the bidder will be bought by the target firm at an above—market price. ⚫ Repurchase offer: where the firm offers to buy back some of its own stock. ⚫ PacMan defense: where the initial target turns around and makes a tender offer for the initial acquirer. ⚫ Crown jewel defense ; where the target sells its most attractive assets to make the firm less attractive
Chapter 6 Common Stocks Poison pills; where the target gives its shareholders certain rights that can be exercised only in the event of a subsequent takeover and that, once exercised, will be extremely onerous to the acquirer o Ownership versus control o Much has been written about the effect of the separation of ownership and control of the modern corporation. This separation gives rise to what is known as a principal agent problem e Stockholders can be viewed as principals who hire management to act as their agent. The agent is to make decisions that maximize shareholder wealth as reflected in the stock price
Chapter 6 Common Stocks ⚫ Poison pills ; where the target gives its shareholders certain rights that can be exercised only in the event of a subsequent takeover and that, once exercised, will be extremely onerous to the acquirer. ⚫ Ownership versus control ⚫ Much has been written about the effect of the separation of ownership and control of the modern corporation. This separation gives rise to what is known as a principal—agent problem. ⚫ Stockholders can be viewed as principals who hire management to act as their agent. The agent is to make decisions that maximize shareholder wealth as reflected in the stock price
Chapter 6 Common Stocks e No problem would exist if stockholders could monitor the managers costlessly, but the monitor is not costless o Stockholder's equity ● Par value o Book value o Reserved and treasury stock o Classified stock o Cash dividends Payments made in cash to stockholders are termed dividends. These are typically declared quarterly by the board of directors and paid to the stockholders
Chapter 6 Common Stocks ⚫ No problem would exist if stockholders could monitor the managers costlessly, but the monitor is not costless. ⚫ Stockholder’s equity ⚫ Par value ⚫ Book value ⚫ Reserved and treasury stock ⚫ Classified stock Cash dividends Payments made in cash to stockholders are termed dividends. These are typically declared quarterly by the board of directors and paid to the stockholders
Chapter 6 Common Stocks of record at a date specified by the board, known as the date of record o Stock dividends and stock splits Occasionally, the board of directors decides to forgo a cash dividend and"pays"a stock dividend Instead A stock split is similar to a stock dividend in that the stockholder owns more shares afterward With a stock split, all the old shares are destroyed and new ones are issued with a new par value Afterwards the number of new shares outstanding is usually larger than the previous number of old shares by 25% or more
Chapter 6 Common Stocks of record at a date specified by the board, known as the date of record. Stock dividends and stock splits Occasionally, the board of directors decides to forgo a cash dividend and “pays” a stock dividend instead. A stock split is similar to a stock dividend in that the stockholder owns more shares afterward. With a stock split, all the old shares are destroyed and new ones are issued with a new par value. Afterwards the number of new shares outstanding is usually larger than the previous number of old shares by 25% or more