| [Member (365WT)]answers [Chinese ] | Time :2019-07-15 | The change in capital structure mainly refers to enhancing the company's ability to resist acquisition by adjusting the capital structure of the target company.
There are four main forms of capital structure changes, namely, capital structure adjustment, debt increase, stock issuance, and stock repurchases.
Capital restructuring was very popular in the United States in the late 1980s, in the form of large-scale dividends to shareholders through debt. In 1985, with the help of investment bank Goldman Sachs, the multimedia company first used capital structure adjustment as a means of anti-acquisition.
Although the capital structure adjustment will cause the company to take on more debt, the company can also resist the acquisition by directly increasing the debt without the need to adjust the capital structure. A low debt-equity ratio of the company will make it easier to become an acquisition target, and hostile takers can use the company's debt space to finance the acquisition. Since debt repayment affects the company's cash flow, increasing debt will increase the company's financial risk. Using increased debt to prevent mergers and acquisitions can be said to be a scorch strategy because it could lead to the bankruptcy of the target company in the future. The target company can increase debt through bank loans or bond issues.
Another anti-acquisition method is to issue additional shares. The additional shares can increase the equity based on maintaining the existing debt level, thus increasing the difficulty and cost of the acquisition. The US Airy Railway Company has faced the hostile takeover of Vanderbilt, Airy. The railway company resisted Vanderbilt’s acquisition attempt by issuing additional shares. However, this would dilute the equity and damage the shareholders. In order to prevent the new shares from falling into the hands of hostile bidders, the target company would Directly issue private placements to those goodwill companies, and the company sometimes also issues new shares to employees. In 1999, Guxi Company used new shares to defend against LGMH’s hostile takeovers..The Delaware anti-acquisition law stipulates that the target company can block the merger by selling 15% of the company's shares to employees. In December 1989, Chevron Corporation issued a license to prevent it from being acquired by Panzor. 14.1 million shares created an employee stock ownership plan. In order to eliminate the dilution effect of the new share issuance on equity, Chevron borrowed $1 billion in 1990 to repurchase newly issued shares when the threat of mergers and acquisitions was found to have been eliminated. Polaroid, which was registered in Delaware in 1988, also used the employee stock ownership plan to deal with the hostile takeover of Shamlul, which acquired a 6.9% stake in Polaroid and expressed its desire to gain control of the company..Polaroid transferred the newly issued 10 million shares to the employee stock ownership plan, which accounted for 14% of the company's outstanding shares. Because Delaware law requires that the company registered in the state must have 85 % of the shares can control the company and sell the assets, and now only 86% of the outstanding shares remain in the hands of the public. Therefore, it is difficult for hostile bidders to achieve their goals...
Another anti-acquisition method for the target company is to buy back shares of its own company. The benefits of repurchasing are: stock repurchases can make it difficult for hostile bidders to obtain shares; it also makes it difficult for arbitrageurs who often help acquirers to obtain shares; it can provide channels for the use of idle funds, and acquirers cannot use these Assets finance their acquisitions; the same target companies can repurchase through debt, which also blocks the financing path for acquirers. |
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