Agent or steward: The target CEO in a Hostile takeover. Can a condemned agent be redeemed?

Long Range Planning

Volumn 37, Issue 3, 2004, Pages 239-257

  Angwin, Duncan ^a   Stern, Philip ^a   Bradley, Sarah ^a  

^a UNIVERSITY OF WARWICK   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

INDUSTRIAL APPLICATIONS; TAXATION; THEORY;

CORPORATE GOVERNANCE; STAKEHOLDERS;

STRATEGIC PLANNING;

FIRM OWNERSHIP; INDUSTRIAL PRACTICE;

EID: 2942670570     PISSN: 00246301     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.lrp.2004.03.006     Document Type: Article

References (34)

1. J. Franks and C. Mayer, Takeovers: Capital markets and corporate control: A study of France, Germany and the UK, Economic Policy: A European Forum 10, 189-231 (1990);
2. T. Jenkinson and C. Mayer, Hostile Takeovers, Defence, Attack and Corporate Governance McGraw Hill (1994) may understate the actual level of replacement in hostile bids as their interpretation of hostile could include initial posturing/bargaining behaviour by the target. D. N. Angwin, After the fall, Management Today 56-58 (1996).
3. Morck R. Schleifer A. Vishny R.W. Characteristics of targets of hostile and friendly takeovers Auerbach A.J. Corporate Takeovers: Causes and Consequences 1988 Chicago University Press
4. Morck R. Schleifer A. Vishny R.W. Alternative mechanisms of corporate control American Economic Review 79 1989 842-852
5. Bhide A. The causes and consequences of hostile takeovers Journal of Applied Corporate Finance 2 1989 36-59
6. US Securities and Exchange Commission SEC sues former Tyco CEO Kozlowski, 16th October, http://www.sec.gov/news/press/2002-135.htm (2002);
7. A. Rayner, Divorce reveals secrets of E-Y, The Times, 16th October (2002) reported that Welch received such benefits as a Manhattan apartment, limousine services, security guards, corporate jet, and best seats at sporting and artistic events.
8. M. Jensen and W. Meckling, Theory of the firm: managerial behaviour, agency costs, and ownership structure. Journal of Financial Economics 3, 305-360 (1976) show that the possibility of jeopardising future job, salary or promotion opportunities, places an upper limit on the level of effort problem.
9. Y. Amihud and B. Lev, Risk reduction as a managerial motive for conglomerate mergers. Bell Journal of Economics 12, 605-616 (1981).
10. M. Jensen, Agency costs of free cash flow, corporate finance and takeovers. American Economic Review 76, 323-329 (1986);
11. A. Shleifer and R. Vishny, Value maximisation and the acquisition process. Journal of Economic Perspectives 2, 7-20 (1988) describe how the willingness of managers to pay for benefits to themselves that are of no value to shareholders explains why acquisitions often result in negative returns for acquiring firms.
12. Davis J.H. Schoorman F.D. Donaldson L. Towards a stewardship theory of management The Academy of Management Review 22 1997 20-47
13. Albanese R. Dacin M.T. Harris I.C. Agents as Stewards The Academy of Management Review 22 3 1997 609-611
14. D.N. Angwin, P. Stern and S. Bradley, Blue Circle, unpublished case study (2003).
15. This was, however, a premium of 33.6 percent over the closing middle market price on Thursday 27 January, the day before significant speculation.
16. The publication date of the results was brought forward by five weeks, partly because the original date would have been after day 39, the latest date on which Blue Circle could issue new information, and partly to provide a solid base from which to launch the defence in which management attempted to justify their current strategy. Takeover Code rules prevent the issue of forecasts, but as Lafarge had issued forecasts for the prospects in Asia, Blue Circle was permitted to respond in its release of March 28th. The release on April 11th announced the first tranche of £400 million was to take place by way of a tender offer for Blue Circle's shares, although the form of the second tranche was left open.
17. Leaks of the talks with Southdown may have precipitated the Lafarge bid. Potential white knights may have included Italcementi, Cemex, Holderbank, Hanson, RMC and Aggregate Industries. Under Canadian law, Lafarge was only permitted to acquire up to 20 per cent of Blue Circle before receiving clearance, but the stake held by Lafarge's bankers meant that Lafarge effectively controlled nearly 30 per cent.
18. S. Bradley, Personal correspondence (2003).
19. The options on 431,166 shares would have realised a profit of approximately £340,000 at the original offer price of £4.20 and £469,000 at the revised price of £4.50. The additional options granted could be exercised in the event of a change in ownership of Blue Circle.
20. The increase from 29.5 percent was due to the first tranche of the return of capital, by way of tender offer, being completed. The best deal for shareholders could have involved any resolution of the Lafarge holding-e.g. an asset swap.
21. Weir C. Corporate Governance, performance and takeovers: an empirical analysis of UK mergers Applied Economics 29 1997 1465-1475
22. Fosberg R.H. Leadership structure and CEO compensation American Business Review 17 1999 50-56
23. There are some checks and balances against this in law. The financial adviser has to produce an opinion that the valuation they produce is a fair view. For this opinion they are accountable and this responsibility is not taken lightly. However the financial advisor is dependent upon information supplied to them by the client and they do have a vested interest in a successful defence.
24. See D. N. Angwin, P. Stern and S. Bradley (2003) op cit at Ref 7.
25. Linear extrapolation of the dividends for 1994 to 1998 predicts a final dividend for 1999 of 10.955 pence per share, almost exactly what was actually paid. Using the average growth rate for dividends for the same period predicts a final dividend for 1999 of 11.04 pence per share. The brokers' consensus for total dividends for 1999 was 16.0 pence, giving a final 1999 dividend of 10.95 pence.
26. Examples of 'shark repellents' and 'poison pills' are; loan covenants making all debt repayable instantly in the event of takeover. This could put the company onto the insolvency lists if the 'shark' comes too close; onerous commercial agreements; 'platinum and golden parachutes', where unacceptably high compensation is payable to incumbent directors, or 'tin parachutes', of many smaller widespread payments on change of control. In a 'crown jewels' defence, if the piece can be identified, an agreement with a third party to sell, if, and only if, the bid succeeds, removes the raison d'être for the takeover. Often these agreements for sale are well below market price.
27. Holl P. Kyriazis D. Agency, bid resistance and the market for corporate control Journal of Business Finance and Accounting 24 7 1997 1037-1066
28. Wealth change for directors in uncontested bids was an average of 8.6 years annual salary, whereas that for directors in contested bids was only 2.3 times annual salary see: R. A. Walkling. and M. S. Long, Agency theory, managerial welfare, and takeover bid resistance. Rand Journal of Economics 15, 54-68 (1984).
29. See J. Franks and C. Mayer (1990)
30. T. Jenkinson and T. Mayer (1994) op cit at Ref 1.
31. Haythornthwaite would have probably forfeited the chance to double his share options (an increase of £631,000 on his £469,000) and add some 25 percent to his salary (an increase of £90,000 on his £400,000). Shareholders would have lost around 45 pence per share (10 percent of value).
32. D. N. Angwin, Strategy as Exploration and Interconnection, (2003) chapter 8
33. in S. Cummings and D. Wilson, Images of Strategy, Blackwell Publishing Ltd. Oxford 228-265 (2003).
34. It is somewhat ironic that the hostile bid by Lafarge implies Blue Circle's underperformance in expansion is evidence of an agency problem and yet explicitly they criticise Blue Circle for not investing enough in extending overseas.