Hostile acquisition outcome and its legal involvement in UK and Europe

December 30, 2016

 

Introduction

 

During the last three decades, merger and acquisition cases have gradually increased in number as well as size over the world and have become one of vital interest of financial economists, according to the research’s result of  Gelman and  Wilfling (2009). Actually, merger and acquisition are increasingly being used by companies to maintain and increase their positions in markets. They are assumed as efficient and fast ways to penetrate and expand new markets. By merger and acquisition, companies will obtain the rapid growth rather than usual if they know how to utilize advantages of merger efficiently, Yoo, Lee and Heo (2013). Obviously, when merger and acquisition between two companies is completed successfully, the market share of two different companies will be united and subsequently expanded quickly than its own. Many subsequent effects are that they remove competition, reduce operating cost, attract and recruit talent and improve its network, according to  Lenartowicz, Mason and Foster (2013). They are some typical benefits and advantages which merger and acquisition brings to entrepreneurs. Realizing above advantages by entrepreneurs contributed to increase merger and acquisition transitions in today’s economic.

Moreover, in fact, all companies today have to become fast growing, efficient, flexible, adaptable and profitable as most necessarily. Additionally, the potentiality of future development must be mentioned as top matter of companies. If the company couldn’t satisfy one of above elements, they wouldn’t have confidence in competition among today’s global economy, Levi, Li and Zhang (2013). This drive has put pressure on to company’s management teams to look to expand and merge for satisfying above elements as well as keeping their jobs.

In some industries as bank and insurance, they moved into new market. In some other industries as pharmaceuticals and software technology, they also found smaller companies which have developed new products to corporate. Growth by acquisition develop, they could manufacture and distribute more efficiently or profitability, Stiebale (2013). Besides that, they had to develop their own internal growth, innovation and management. Regardless of industries, merger and acquisition have appeared and become indispensable in global economy to compete, grow and develop through deals to each other, according to Galpin and Hemdon (1999).

 

The importance of merger and acquisition in global economic

 

Merger and acquisition have gradually eliminate global barriers,  Duffy (2013) and contribute to make trading advantages as need for large economies of scale, expanding markets, deregulation, risk spreading, globalization and rapid response to market changes. It also made great contributes to development of “neoliberalism” in global economics.  According to Duffy (2013), “neoliberalism suggests that the government should reduce deficit spending, decrease subsidies, reform tax law to broaden the tax base, open up markets to trade by limiting protectionism, remove fixed exchange rates, privatize state-run businesses, allow private property and back deregulation”. The term "liberal" in economics and in politics are absolutely different. In Economics meaning, liberalism refers to "freeing up" economy through removing barriers and restrictions to what actors can do. Obviously, Neoliberalism's policies encouraged merger and acquisition to become more popular and an important part in today’s global economics.  That is demonstrated by continuous increasing of M&A value.  Even in the financial crisis 2008, the value of merger and acquisition exceeded $10.5 billion, according to Schuler and Jackson (2001). This number reflects positive significance that during financial crisis, M&A still plays important role as well as its value is enormous comparing to annual income.

The increases of number of Merger and Acquisition attempts have healed global financial crisis which commended in 2008, Oberg and Holtstrom (2006). Global financial crisis 2008 commenced in European countries and then spread over the world. The European market incurred the most negative influence of financial crisis 2008 and so this market has become less attractive to investors. Thus, demanding and finding new potential markets is top issue for companies in European right now. Merger and Acquisition can help them to access new market quickly and exploit them effectively. The target of merger and acquisition is to focus on growth outside Europe, expand new geography and invest in secondary market as Asia. So, merger and acquisition is a tool for them to find, access and exploit new market efficiently. In other words, the increases of number of merger and acquisition attempts have contributed to heal global financial crisis 2008.  Through that, economics has given fuel to accelerate the growth of companies and activate more merger and acquisition activities.

 

Legal aspect, aim and objectives of the research

 

It is assumed that legal advice takes the crucial role in merger and acquisition transactions. So, the role of legal work is the most essential elements in merger and acquisition activities and these activities rely on law firms heavily. The reason is merger and acquisition requires deep understanding about legal system, relevant code, regulation and to legalize merger and acquisition process. Solicitors can help the acquiring company to facilitate merger and acquisition process, avoid or limit lawsuit and solve legal issue as possible. On the other hand, from the view of acquired company, solicitors can also provide advices to against to merger and acquisition of acquiring company in legal way. So, role of legal advice is very important in merger and acquisition transactions. Williamson (2008) also emphasized that lawyer is an indispensible person as legal consultant, witness to complete merger and acquisition transactions. The risks of bad legal advice are that firstly companies might face legal issues, lawsuit which costs money and time so much and even failure in merger and acquisition. So, the research will deal with relevant law, code as well as regulation in merger and acquisition among UK and Europe. The research will provide the brief of recent applicable law when companies want to carry out merger and acquisition. This helps companies know how to carry out merger and acquisition, how its process develop and which issue requires company’s attention in legal ways. In sum, this research will draw legal environment which merger and acquisition will be involved.

Besides legal side as mentioned above, the research will focus on “the effect of hostile acquisition on company’s performance” in other words “hostile acquisition outcome”.  Firstly the research will present the core terminology on merger and acquisitions and then mainly focus on hostile acquisition. In order to research “hostile acquisition outcome”, the author chose Kraft- Cadbury case study which have carried out hostile acquisition, and then evaluate their performance before and after acquisition to get the outcome of hostile acquisition. All evaluation will be accessed by their ratios as net income, return on asset, return on equity...Finally, the research will provide advice and recommendation to support hostile acquisition successful.

 

In order to understand this topic more quickly and easily, the term “merger and acquisition” will be introduced briefly as below. “Merger and acquisition are all aspects of corporate strategy, corporate finance and management dealing of buying, selling, dividing and combining of different companies and that may help companies grow rapidly in its own sector”, according to Hannigan (2009). The term “merger and acquisition” is used to relate to the consolidation of companies. From the legal, among this term, “merger” refers to combination of two companies to establish one new company, while “acquisition” refers to buying one company by another and there is no new company which is established after that.

Besides that, in literature review, the research will provide theory and analysis from books, journals, acts and case law, among that, “takeover” is used as transaction which one company buy enough shares of another company to get control, following to Hannigan (2009). “Takeover bids” means that acquiring company purchases securities of acquired company to get the control of acquired company. Similarly, the acquiring company is holding company and the acquired company is as a subsidiary. In this report, “takeover” term will be used because this report mainly focuses on statutory acts of UK (The Take Code, 1968) and European Union (Council Directive 2004/25/EC).There are some keys words that will make the research more clearly about terms as. “Acquiring company”: called as bidder, offeror. On the contrary, “Acquired company”: called as offeree company, target company, according to Hannigan (2009). “Takeover bid” also means an offer by  the offeror company to the offeree company’s shareholders to acquire their shares  ( the Takeover Code).  All necessary terminologies were listed that made the research to become easier to understand for reader.

Merger and Acquisition have become more and more popular in today’s global market and it is also challenging and important topic to attract researchers to work with mergers. It is to gain a strong understanding of the legal issues that surround such events. In this research, its subject deals with one of the most important issue of companies whose security is admitted to trading on regulated market, among that, legal advice is very important for each transaction as well as merger and acquisition process. Before starting merger and acquisition, enterprises must understand its legal involvements and its ultimate available outcome that help enterprises to avoid or limit lawsuits in order to achieve the best M&A outcome as possible for themselves. So, the author produced this research as a useful tool to support companies about legal involvements in M&A procedures and M&A outcome that is also the aim of research.

 

Research Aim

 

The aim of research is to identify and evaluate the effect of hostile acquisition on company’s performance as well as hostile acquisition outcome. It is involved within the legal regulations and laws in merger and acquisition among UK and Europe.

 

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Table of content

1.Introduction...............................................................................................................3
            1.1 The effect of merger and acquisition to entrepreneur.................................3
            1.2 The importance of merger and acquisition in global economic...................4
            1.3The importance of merger and acquisition in global economic...................5

2.Literature Review……………………………………………………………….…..9

2.1 Merger and Acquisition Performance Evaluation …………………………......….9

2.2.Legal approach: UK and EU legislation brief survey............................................11

2.3.Hostile takeover……………………………………………………….……..…..17

 

3.Methodology…………………………………………………………………….....25
           3.1 Legal Research Paradigm............................................................................27
           3.2 Philosophy of law.......................................................................................27
           3.3 Methods......................................................................................................29
 4.The Case Study........................................................................................................35
4.1 Introduction.............................................................................................................35
4.2 Hostile acquisition and Timeline of deal...............................................................38
4.3 Hostile acquisition outcome...................................................................................42

5. Analysis....................................................................................................................45

6. Recommendation and Conclusion...........................................................................49

Reference ....................................................................................................................51
Appendix.....................................................................................................................54

 

 

 

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