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10/25/2015 BM Global MBA Fashion Faux Pas Gucci & LVMH

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BM - Global MBA - Fashion Faux Pas - Gucci &LVMH* Required

Your Name: *

Akshay Mall

Select the suitable takeover defences available for Gucci? *

Dilute Ownership

Super Poison Put or People pill

Jonestown Defense / Suicide Pill

Increase Debt and offer strong Loan Covenants

Decrease Excess Cash by Share-Repurchase

Dual-Class Recapitalizations

Corporate Charter

Issue ESOP

Selling the Crown Jewels

Decrease Excess Cash by paying Dividend

Nancy Reagan Defense

Macaroni Defense

Management Persuasion

Exclusionary offers

Increase Debt and Dilute Rating

Treasury Stocks

Issuing non-voting stock – two or three types



Poison Pill

Re-organization of Assets

Joint Ventures

Staggered Board or Directors – kill proxy fight

Increased stock ownership by management on change of control

White Squire – Minority stake

Pension Parachute

Create Antitrust Issues

Voting Plan or Voting Rights Plan

Lock-Up Provision

Standstill Agreement

Increase Debt above Industry Levels

Flip-in Plans – purchase of share at premium on an event

White Knight and Grey Knight

Flip-over - Rights

Scorched earth policy

International Bidders

Liquidate Securities Portfolio

Sell Undervalued Asset

Divest Subsidiaries

Proxy Context

Decrease Excess Cash by Acquiring Other firms

Reducing Retained Earnings

Plan for Buy-Outs

When a company is in play, should management be allowed to issue more shares tofrustrate the takeover attempt without the approval of the Board and/or shareholders? *

No management may have objectives that dont align with the long term benefits for shareholders. Management entrenchment theory states that management uses defense tactic to prolong their position and not for benefit of shareholders

What are the disadvantages of hostile approaches to corporate takeovers? *Hostile takeovers occur at high price which makes achieving synergies to justify the acquisition price impossible. Also good due diligence is not possible in hostile takeovers.



How a firm can dilute an unwanted shareholder? *Shareholder's rights plans activates at the moment a potential acquirer announces its intentions in this shareholders can purchase additional shares to dilute hostile attempt.

What are the advantages of friendly approaches to corporate takeovers? *1. Better due diligence possible as greater information sharing2. Better valuation no overpriced acquisition. Premium paid for acquisition is less. High synergy needed for overpriced acquisition do not get realized.3. Better post merger integration no hostility between managements

Did Gucci, as an organization, win? Look at from stakeholders perspective. *

LVMH cashed out in 2001. Gucci shareholders reaped a premium for change of ownership. PPR paid $812 m( 94/share). $2 premium over the closing price.

Whether a change in ownership should result in a premium being offered to allshareholders, including minority shareholders? *Yes change in ownership should generally lead to premium for shareholders as power of control comes at a price

What are the various Forms of Takeover Available for LVMH? *1. Friendly takeoverapproved by the managementTwoTier Bidacquiring company will pay a premium above share's price to convince shareholders to sell their sharesAnyandAll Bid: The acquiring company offers to buy target firm's shares at a specific price. 2. Hostile takeovernot approved my targets management3. Backflip takeover here the acquiring company turns itself into a subsidiary of the purchased company4. Reverse takeover where a private company acquires a public

What are the Other Alternative that were Available for LVMH? *



1. Backflip takeover here the acquiring company turns itself into a subsidiary of the purchased company2. Tender offeracquiring the company making public offer at fixed price3. proxy fight persuade shareholders to replace management with enw one which will approve takeover

What are the non financial takeover defenses available for Gucci? *

1. Staggered or classified boards2. Limitations on when directors can be removed3. Super majority provisions 4. Anti greenmail provisions5. golden parachutes

What is creeping acquisition? *Creeping acquisition purchase company's shares over a number of small transactions to increase ones stake in the company to an economically significant amount without requiring any disclosure

What are the advantages of hostile approaches to corporate takeovers? *1. Higher premium paid for acquisition2. Debt is usually taken for the acquisition ensures efficiency3. Usually hostile takeovers have larger cash component

What are the advantages of creeping acquisitions? *

Creeping acquisitions can go undetected. Are useful when target's management hostile towards competitors acquiring majority stake.

What are the financial characteristics that make a firm vulnerable to takeover? *



1. Under performing stock price 2. Asset quality3. Strong market presence/share4. Potential for high growth in industry5. Inefficient management/ slack

What if LVMH had won? *

Create a luxury good market leader with synergies arsing through knowledge share and in leather sourcing.

Was PPR a White Squire? *Yes since it acquired a minority holding

Was Gucci actually acting to defend shareholder rights, or were its actions motivated bymanagement’s desire to maintain its power and position? Whether the actions taken byGucci’s management in defending its independence were actually in the best interests ofshareholders? *Gucci did not even negotiate with LVMH. Management wanted control at any cost. Its actions may not have been in best interest since it used poison pill defense tactic which is not in best interest of shareholders.

What if both LVMH and PPR had withdrawn? *

Gucci share price would have dropped since investor confidence would be low

How BOD can avoid Agential Issues in Acquisitions? *



Have independent directors on the board in greater numbers

What are the disadvantages of friendly approaches to corporate takeovers? *

1. May be time consuming 2. Approval from shareholders difficult due to lower premium3. Excessive delays due to negotiation4. Too many covenants and conditions may not enable the combined entity to cut slack( lay off employees, sell assets)

In the end, had Gucci’s shareholders been winners or losers? *Gucci shareholders were winners as they got a high premium for their shares. However, the dividend payout wasnt as high as expected but still offered a significant upside.

Your SID: *B14007

Should a company be allowed to issue shares to individual shareholders without allowingfirst right of refusal to all shareholders of their ability to purchase shares to preserve theirproportional ownership (voting rights, dividend rights, etc.)? *

This is a required question

What is the Motivation for Gucci’s Hostile Takeover Defense? *



LVMH is a competitor and it does not make sense for them to have a minority holding in Gucci.

What are shareholder rights in terms of control in ownership? *

This is a required question

What are the disadvantages of creeping acquisitions? *Increases the cost of acquisition if share price in market goes up. Longer time frame and in volatile market can be difficult to execute.

What are the financial takeover defenses available for Gucci? *1. Poison pill2. white knight3. ESOP4. Share Buy backs5. Greenmail

Of the external factors impacting corporate governance, which do you believe is likely tobe the most important? Be specific *

External factors impacting coporate governance:Regulators ;Institutional Activism;Corporate takeover market; legislationCorporate takeover market: hostile takeover threats keep management from slacking and have greatest impact since it directly affects management

Do you believe corporate governance should be narrowly defined to encompassshareholders only or more broadly to incorporate all stakeholders? *



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Corporate governance should incorporate all stakeholders and the narrow defination on the basis of control or voting rights is not in the best interest of all stakeholders

Do you believe that corporate takeover defenses are more motivated by the target’smanagers attempting to entrench themselves or to negotiate a higher price for theirshareholders? *

Takeover defense according to theory of management entrenchment are motivated by managers who want to maintain their position in the firm

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