Question

Firms facing hostile takeovers often take actions to forestall the acquisition. For instance, a firm could seek help from another company to become a friendly acquirer of a target firm and protect itself from a hostile takeover. Such tactics are referred to as Denton Manufacturing has made a tender offer for Hynde Industries. Both companies are relatively large firms in the automobile parts industry. Which of the following likely would be the most effective defense tactic for Hynde to take against this merger? Soliciting a white knight to compete with Denton's offer Raising antitrust concerns to the Justice Department Issuing new common stock Amit works for an investment bank in the corporate finance division. Along with the typical functions in his job role, such as finding a potential target company for a client which would add synergistic value to the client, finding a potential acquirer for a client, developing defensive tactics, establishing a fair value and financing operations, Amit also works with his team in conducting arbitrage operations. Based on your understanding of arbitrage operations complete the following sentence: In a recent trade, Amit was assigned to buy 10% of a client's shares from the open market at $45.50 per share and sell the shares at a price of $46.20 to a private investor, pocketing a return for his firm. Amit was involved in

Answer 1

Ans:- (1) White Squire.

Explanation:- In this tactic, the friendly company or the investor i.e white squire buys a share in the target company so that it can prevent it from hostile take over. Such tactics are known as white squires. This is somewhat similar to the white knight but the difference is the target company does have to give its independence because in white squire the investor only buys a partial share of the company whereas in white knights the investor wholly takes the target company.

Ans:-(2) The most effective defense tactics for Hynde Industries to take against the merger would be raising antitrust concerns to the justice department because raising an antitrust concern will act as a deterrent to take against this merger.

Antitrust Laws are basically meant to protect the consumers and stop the business from playing dirty games to make profits. This law makes sure that fair and square competition exists in the market.

Therefore the right option is Option (b).

Ans:-(3) Amit was involved in Pure Arbitrage.

Explanation:- In pure arbitrage you take no risk, you don't have to invest money and you can take away sure profits. Arbitrage is nothing but the simultaneous buying and selling of the assets due to price imbalance. Amit clearly is involved in pure arbitrage because he has to buy the assets from the open market and sell to the private investor at a pre-determined price which is clearly a case of pure arbitrage.

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