Euro Takeover! 2005 (a) the Target: Hoogenfood N.V

Abstract

This exercise simulates a hostile takeover attempt. The target is an underperforming conglomerate with two principal business segments: consumer foods and specialty chemicals. The raider company has a history of hostile action, usually profiting from greenmail or the bust-up liquidation of the unfortunate target. Two other bidding parties are present: a white knight firm, which has had amicable relations with the target in the past and considers making a friendly bid for the target, and an LBO firm which has ample equity and lines of credit with which to finance a buyout. Finally, the instructor has the option to include two banks that can impose some restraint on possible deal frenzy. The exercise organizes students into teams representing the four companies, who must negotiate an outcome to the episode most advantageous to their own firms. The parties are motivated to take action, because the expiration of the Raider's tender offer will occur soon, at which time, if there is no higher offer outstanding, the arbitrageurs will tender their shares and the Raider will seize control. All parties know that the Target Company's board of directors is meeting in a few hours in an effort to settle on a course of action. This exercise is ideally suited to a) exercise students' valuation and negotiation skills, b) train students in the unusual dynamics of hostile takeovers, and c) develop an understanding of some fundamental points of corporate governance, including the responsibility of a board of directors and the agency problems that can arise when managers' jobs are threatened.

Excerpt

UVA-F-1497

Version 5.2

EURO TAKEOVER! 2005 (A)

THE TARGET: HOOGENFOOD N.V.

On Monday, January 31, 2005, Victor Hoogens, CEO of HoogenFood N.V., reflected on the hostile tender offer mounted against his company four weeks earlier. He hoped to make the headache that had dogged him go away, but he knew it wouldn't until he and his management team made a final recommendation to the board of directors about the hostile offer. The details of the tender offer were contained in a document called an Offer to Purchase (Exhibit 1) which had been delivered to Hoogens and the Dutch Financial Markets Authority (Autoriteit Financiële Markten, or AFM) just before the public announcement. The document showed, among other things, that Finance Mondiale S.A. owned 8.5% of HoogenFood. Should HoogenFood's board resist or endorse the tender offer? In either case, what should the firm's plan of action be? Would this plan serve the directors' fiduciary duty to shareholders?

It was time to decide. The situation was urgent. The raider had sued in the Enterprise Court in Amsterdam to prevent HoogenFood from using its strongest anti-takeover defense, the shareholder rights plan. A special hearing would take place the next day. The raider had extended its tender offer until February 10, pending a final decision by the court. However, several of HoogenFood's directors demanded action. Practically, Hoogens had until the 1:00 p.m. board meeting that day to prepare a recommendation. Any perceived stalling on his part might prompt the board or the investors to make a decision for him.

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Keywords: defense takeover, mergers and acquisitions, bargaining and negotiating