Page 23 - SCS May 2018 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

Revalue non-current assets

This requires the non-current assets to be shown on the Statement of Financial Position at up to
date valuation rather than historic cost (which we currently use). The idea is to ensure the
shareholders are aware of the “real” value of the business’s assets.

As our results have not yet been published we could consider this possibility but as the majority of
our non-current assets are intangible in nature it would not be a simple exercise and the results
would be open to question.

Poison pill strategy

This involves the company taking specific action to make it more difficult for a potential bidder to
actually achieve the takeover. If the existence of the strategy is in the public domain (which is
likely) it may deter any bid in the first place.
It can take many forms but could for instance comprise a way of creating more shares in the event
of a bid by the use options to buy bonds or preference shares. If a bid occurs before expiry of the
option the options automatically crystallise into ordinary shares.

Super majority

This requires the Articles of Association to be changed to require a higher than normal % to vote
in favour of the bid in order for it to go ahead. Our AGM is due shortly so the motion could be
added to the agenda. However, we would have to provide a sensible reason for suddenly wanting
to do this and, if the shareholders are of a mind to accept a viable bid should one occur, the
motion may well not be passed.

Post Bid defences

Appeal to the shareholders

This is post bid communication with the shareholders explaining why the board believe it is in the
best interests of the shareholders that they reject the bid. It would usually involve explaining why
the bid is too low compared to the future benefits that the existing company can generate by
remaining as it is.

Attack the bidder

This involves criticising various aspects of the bidding company again to try to persuade
shareholders not to accept the bid. It could involve criticism of management style, aggressive
financing packages or dubious accounting.

Whether or not such a defence is available would only become clear when the identity of the
bidder is known.

Counterbid

This would involve us reacting to the bid by ourselves making a bid for the company bidding for
us. Again, whether or not this would be feasible can only be determined when the identity of the
bidder is known.

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