American Cyanamid Case Series: (A)-Board Response to a Hostile Takeover Offer, (B)-Management's Response to the (a) Case, (a) & (B) Combined, (C)-Epilogue, and Associated Teaching Note
Posted: 12 Sep 2000
Date Written: December 3, 1997
SUBJECT AREAS: mergers and acquisitions; value creation; corporate governance; boards of directors CASE SETTING: 1994; USA; pharmaceuticals
This case series provides an opportunity to explore the factors influencing the market for corporate control, and the boardroom dynamics associated with hostile takeover offers. In August 1994, the board of directors of American Cyanamid (Cyanamid) voted unanimously to support the hostile tender offer made for the company by American Home Products (AHP). At $9 billion, the deal was the largest merger and acquisition transaction of 1994. It made AHP the fourth largest pharmaceutical firm in the US.
The (A) cases present the perspective of one of Cyanamid's long-time outside directors, Paul W. MacAvoy, on the effectiveness of American Cyanamid's governance processes, management practices and events surrounding the takeover. The (B) case presents letters from managers taking issue with MacAvoy's interpretation of events. They include letters from Albert Costello, then Cyanamid's Chairman and CEO, Larry Ellberger, then Cyanamid's VP of Corporate Development and Planning, and David Culver, another outside director. The (A) and (B) cases are intended to be assigned together.
At issue is whether Cyanamid's board will endorse AHP's hostile offer in spite of the fact that management has been exploring an alternative transaction that involves an asset swap with SmithKline Beecham. In addition, the cases allow students to explore how differently individuals perceive the same events, and how these differences affect behavior and decision-making. The cases highlight the difficulty boards face when the successful completion of an acquisition threatens the survival of a firm whose continuation is important to managers. It also illustrates how boardroom norms and board structure can impede effective corporate governance.
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