Hostile bids in corporate acquisitions and takeovers

PeopleSoft and Oracle Merger

Why was this a hostile takeover?

PeopleSoft strongly resisted the attempts of Oracle to buy out its stock, thus making the takeover hostile rather than friendly. "When the deal [merger] is unfriendly -- that is, when the target company does not want to be purchased -- it is always regarded as an acquisition." (Investopedia, 2005) PeopleSoft feared Oracle was merely seeking to buy PeopleSoft to acquire its lucrative customer base of application software. PeopleSoft felt Oracle was interested in supporting its company products, and also that its initial bids to buy its stock were inadequate. Financial industry analysts agreed it was unlikely that Oracle would look to have PeopleSoft develop much in the way of new technology and that a sizable amount of job cuts at PeopleSoft would be likely after the merger, as this was "a financial acquisition" where PeopleSoft's employees would be the losers, or the first to go as the two firms merged their operations. (LaMonica, 2004)

What can a firm do to make takeover less likely?

Target firms in hostile takeovers tend to have the following characteristics, according to Bhide (1993) and Palepu (1991) (cited in "Discussion Issues and Derivations," 2005). Targets of mergers are usually smaller firms, with dispersed stockholdings, and a history of poor project choice and stock price performance. The target firms have under-performed in relation to their comparable competitors in terms of return on equity and stock returns, and have lower insider holdings than other firms in their peer group.

To avoid a takeover, increasing the rate of insider holdings, concentrating them in the hands of powerful investors, and improving the price and returns on investor's stocks in the short-term is thus ideal, an ideal that cannot always be realized. To suggest better project choices in the concrete terms of the industry, and also within a feasible financial strategy would also be helpful in creating investor confidence, as would an expressed willingness to conduct cost-cutting on the part of the target firm by its own volition, without having to undergo the synergy of a merger. PeopleSoft's poor performance, however, could not be remedied.

How can a merger create synergy?

Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or achieve greater efficiency. Because of these potential benefits, target companies will often willingly agree to be purchased when they know they cannot survive alone, even though this was not the initial case with PeopleSoft. (Investopedia, 2005) Synergy results from staff reductions, increased economy of scale, acquiring new technology, improved market research and industry viability/

What are some of the goals of a merger?