Monday, October 29, 2007

The Usual Arguments

There are some standard arguments that an incumbent management of a target company typically makes when a potential acquirer offers an above-market price for a controlling share of a its stock.

So, yes, the offer is for $17 a share and the stock was selling for $14 a share before the offer was made but stockholders should support our refusal to do the deal because:

1) we are working on a strategic plan that will in time have the price at or above $21., the disruption of a change in ownership will only block that plan
2) the offer isn't reliably financed, so the offering price is illusory
3) the buyers don't know how to run a company of this sort, so they'll destroy its value soon after they take over
4) the control premium they offer is too low, we can get better from another buyer.

Note that although arguments (1) - (3) can be employed to defend the continued independence of a company, argument (4) effectively concedes the need for consolidation.

In the case of BEA Systems, their rather terse public statements have suggested (1). The issue of financing hasn't arisen.

Clearly, in this case, classic argument (3) won't fly. The bidder is Oracle, after all. They are running a business of just the same sort as BEA.

Finally, (4) might avail against Oracle, but doesn't work as against Icahn's dissatisfaction. Icahn is calling, precisely, for BEA to hold an auction -- if it can get better than the $21 Oracle is offering, he'd presumably be happy to see it do so.

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