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Preview File Edit View Go Tools Window Help Q Mon 9 Oct 09:38 TenderCase.pdf Page 1 of 2 Q Search TenderCa... C 6.pdf L4-PPT.pdf L3-PPT.pdf 3. Seance... Sujet_Out... EXERCICE... Sujet_Ann... Marketing... Microeco... TenderCase.pdf TOUGH GUY, TENDER OFFER Federated Stores is a publicly traded company running department stores across the US. In 1988, Robert Campeau, a Canadian real estate developer and investor, made his first bid for Federated Stores and its crown jewel, the luxury department store chain Bloomingdale's. He used the strategy of a two-tiered tender offer. This case study looks at the effectiveness of the two-tiered bid as a strategic move: does it give the raider an unfair advantage? In a corporate takeover, the acquirer makes a so-called tender offer to the shareholders of the target company. The tender offer specifies a price at which the acquirer is willing to buy the shares of the shareholder. Every individual shareholder must decide during a prespecified time period whether he accepts the tender offer or whether he wants to keep his shares, without knowing how other shareholders have decided. Both the price and whether the sale goes through at all can be made 1 contingent on how many shareholders accept the tender offer. There are two types of tender offer that are important for the analysis of the situation. A conditional tender offer and a two-tiered offer. A conditional tender offers a fixed price per share but is conditional on a majority of shares being sold to the acquirer. A two-tiered bid is unconditional but offers a high price to the first shares tendered and a lower price to the later shares tendered To keep numbers simple, we look at a case in which the pre-takeover price is $100 per share. The first tier of the bid offers a higher price, $105 per share to the first shareholders until half of the total shares are tendered. The next fifty percent of the shares tendered fall into the second tier; the price paid for these shares is only $90 per share. For fairness, shares are not placed in the different tiers based on the order in which they are tendered. Rather, everyone gets a blended price: all the shares tendered are placed on a prorated basis into the two-tiers. We can express the average payment for shares by a simple algebraic expression: if fewer than 50 percent tender, everyone gets $105 per share; if an amount X% 2 50% of the company's total stock gets tendered, then the average price paid per share is $105 + $90 - X - 50 - = 90 + 15 7 50 2 One thing to notice about the way the two-tiered offer is made is that it is unconditional; even if the raider does not get control, the tendered shares are still purchased at the first-tier price. The second feature to note about the way this two-tiered offer works is that if everyone tenders, then the average price per share is only $97.50. This is less than the price before the offer. It's also worse than what they expect should the takeover fail; if the raider is defeated, shareholders expect the price to return to the $100 level. Hence, they hope that the offer is defeated or that another raider comes along A raider who gains control of the company has a right to take the company private and thus buy out all remaining shareholders. By law, these shareholders must be given a "fair market" price for their stock. Typically, the lower tier of a two-tiered bid is still in the range of what might be accepted as fair market value. That means that we'll assume that those who don't tender will have to sell for 90 if the bid succeeds (i.e., reaches more than 50%). In our case, Robert Campeau offered the above described two-tiered tender. Another raider also came along, namely Macy's. Imagine that Macy's makes a conditional tender offer: it offers $102 per share provided that it gets a majority of the shares. To whom do you tender, and which (if either) offer do you expect to succeed? IDIA DIAL OCT Rakuter kobo