Page 24 - SCS May 2018 - Day 2 Suggested Solutions

CIMA MAY 2018 – STRATEGIC CASE STUDY

Competition authorities

Here the bid is referred to the competition authority on the grounds that it is not in the public
interest because it will reduce competition in the industry. It would be necessary to show that
the combined entity would have an excessively large share of the market (generally in excess of
25%).

Given that we are already one of the bigger companies in the sector any bid is likely to come from
a company of similar or larger size to ourselves so this may become a possibility.

White Knight

This involves the board trying to persuade another company, who they feel would be a better
owner, to make a higher bid and thus acquire the company. Whilst this may avoid being taken
over by the original bidder, it would clearly not achieve the desired result of Couchweb remaining
an independent entity.

Conclusions

No bid has yet been made so technically all pre bid defences are available to us. However, the
analyst’s comments imply that the bidding activity is likely to start fairly soon so some may be
unrealistic in terms of time scale.

As stated above, good communication with shareholders takes a while to become effective so will
not be useful for an imminent bid. The same can be said for the revaluation of non-current assets.
This would take some time and would significantly delay the publication of our results. In the
current circumstances that would be highly undesirable as it would simply add to the uncertainty
in the market. The poison pill strategy would also take time to implement.

Nonetheless the board may consider embarking on any of these strategies as a longer term
measure of protection.

The one pre bid defence that is clearly available is to table a motion at the imminent AGM to
require a supermajority to accept the bid. However, apart from the comments made above, such
a move may be dangerous. Firstly, tabling such a motion could itself trigger a bid before the AGM
takes place, and secondly if the motion is rejected it would be seen as an invitation to potential
bidders.

If a bid does materialise any of the Post Bid defences would be available, subject to the
reservations above. However, the board should remember that in such circumstances they are
required to act in the best interests of the shareholders; attempting to frustrate a bid purely on
the grounds that you, as a founder member, “would very much want us to remain an independent
company” would not be justified.

80 KAPLAN PUBLISHING