Takeover Defenses-A Case Study Of Circon

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Chapter 4: Takeover Defenses- A case study of Circon In this chapter, takeover defenses mechanisms are explained with the example of Circon, a medical device maker company. Defenses against hostile takeovers A hostile takeover can be defended in various ways. Those effectively built-in defensive measures are called ‘shark repellent’. Golden Parachute or "change-in-control benefits” In case of acquisition top brass like CEOs will get a hefty bonus which makes acquisition expensive and less attractive. On the flipside CEO can continue to run company inefficiently and make it attractive for acquisition. Golden handshake is the provision for paying severance package due to pre-term termination. Silver Parachute is similar to Golden Parachute…show more content…
During the initial years Circon commanded monopoly in new market of video systems for surgery. The acquisition of ACMI corporation in 1986 had turned out as a huge success. In 1995, Auhll acquired Cabot Corporation through a competitive bidding process. But Circon experienced losses as a result of Cabot acquisition and its stock price fell. In 1996 , U.S. Surgical made a tender offer of $18 cash per share. Auhll urged “poison pill” which will make acquisition prohibitively expensive for Surgical to acquire more than 15 % stake in Circon without the approval of Circon’s board. In addition, Circon adopted a staggered board, “golden parachute”, “silver parachute”, “broken through”, “Single trigger” and “Double trigger” pay out. As a result, regardless of the shareholder’s support, takeover attempt failed. Auhll packed the Circon’s board with his friend including Goerge Cloutier his Harvard section mate and hired investment banker and lawyer who were in Auhll’s acquaintance. U.S. Surgical continued to renew the offer with $17 and 16.5 per share respectively in 1997 and Circon continued to reject offer as inadequate. In the meantime, Auhll had lost board election to Surgical nominees. But after sometime he came back to board with help of section mate Cloutier. Auhll waited for the white knight or white squirrel as fortune didn’t come back to Circon. Circon was also unable to find strategic buyer who could pay more than $16.5 per share. Eventually everyone lost faith in CEO’s promise. In 1998, Tyco international acquired U.S. Surgical leading an end to the takeover battle. Circon’s stock fell to $7.94 per share. And the dissident board unseated

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