Takeovers: A Strategic Guide to Mergers and Acquisitions.

• Author: Raymond, III, Douglas
• Position: Director Library

By Meredith M. Brown, Ralph C. Ferrara, Paul S. Bird and Gary W. Kubek

Published by Aspen Law & Business, New York, 750 pages, $175.00

FOR MUCH OF the last decade, mergers and acquisitions activity steadily increased -- dramatically so in some industries. This rapid pace of consolidation made it seem almost inevitable that most public companies would be involved in one or more major acquisitions, either as a buyer or a seller. And many jumped into deals simply so as not to be left behind. Much of that has changed in the last 18 months, following the bursting of the tech bubble in early 2000, the onset of recession, and the terrorist attacks. In 2001 and continuing into the first quarter of this year, M&A activity has fallen substantially, hitting a seven-year low in the first quarter of 2002. Most observers expect that this retreat will be temporary, as the powerful forces driving industry consolidation will continue.

As a consequence, directors of public companies, and their advisers, should be prepared for the unannounced "bear hug." How the board reacts in the first days after receiving such an offer can often determine whether or not it will control the process and any negotiations that ensue. It is a risky proposition, and of doubtful benefit to the shareholders, for the target and its directors to first have to go to school in the face of an actual takeover threat.

In general, the board of directors of a public company that could be the object of a takeover bid should each year consider the company's takeover defenses. Many M&A practitioners recommend an annual review in order to prepare directors, management and their advisers, so that they can react quickly to a takeover threat, if necessary. A large sector of the institutional investing community, which apparently has a reflexive bias against defensive measures (particularly poison pills), also encourages an annual review, to make sure that existing defenses are still appropriate and are not being used to entrench management. This annual review should include, in general:

-- a review of the directors' fiduciary duties of due care and loyalty and how these duties may change if a takeover is threatened;

-- an analysis of the company's existing defenses and any judicial or other developments affecting these defenses or how they can be deployed;

-- other potential defensive tools the board may want to consider; and

-- what to do if a hostile offer is received by management or a...