Asad is very happy to report that Saudi Construction Inc. has grown significantly in the last three years through mergers and acquisitions. His family is so proud of him; he is a rich man. However, the problems of managing the business continue, but in different ways. Now, in the 5th of the business, there are still some minority shareholders from some of their acquisitions who make life difficult.
Asad’s industry friends tell him that the best thing to do is get rid of his problems by buying the minority shareholders out. Asad really likes that idea; it would make his life easier now and allow the majority shareholders (whom he controls) to make all the decisions without interference.
Some of Asad’s fellow corporate officers have been secretly talking at lunch about another idea. Why don’t the officers get together and do a management buyout (MBO)? Asad of course is interested because this would make him wealthy beyond all expectations. Of course, the officers will need to borrow a lot of money to do the buyout, but Asad hears there are ways to do it.
Yet trouble is always at the door. A number of the shareholders want to take control of Saudi Construction Inc. away from Asad’s group; they are unhappy with some of the acquisitions and the direction the corporation is going in. The shareholders are threatening a hostile tender offer. They want to go around the board of directors and go directly to shareholders. How can they do that? Asad needs to understand all the tactics these shareholders will employ in a hostile tender offer. More importantly, Asad is a man of action. What can he do to prevent it? If the hostile shareholders want a fight, Asad is prepared to fight. He didn’t work this hard to lose control of Saudi Construction now!
Asad’s friends have told him if he really wants to fight, he must be ruthless. He must create a “poison pill” to make his company’s stock less attractive and thwart the hostile takeover.
(You may refer back to Case Study Scenarios #1 and #2 as needed.)
In at least a two-page paper, fully respond to the following:
Your consulting business has done very well, particularly since you have successful clients like Saudi Construction, Inc. You are sitting at the pool when you receive an urgent call from Asad. He always has grand ideas he got from his friends, but he is smart enough to get your professional opinion before he takes action.
Asad wants to know right away about getting rid of the troublesome shareholders. Some of his friends have called it a “freezeout”. He is also very concerned about a threatening hostile tender offer, and needs to know how how he can stop it. He wants to know all the ways his enemies might make succeed with the hostile offer. Asad can be a brutal businessman, so he also wants to know all about a poison pill and is prepared to put plenty of poison in it if it will stop the hostile tender offer.
Asad hates to hear about all this legal stuff, but he wants you to tell him the ways the Board of Directors can handle things fairly (or fairly enough that the courts will approve). Are there ways to he can make sure it is “legal” to get rid of shareholders without losing a lawsuit? You have lawyers in your consulting team, so he wants to know his options, in reasonably simple terms.
But Asad also want to understand the management buyout (MBO). Secretly, of course; you are to tell no one about the plan. Asad knows you are on vacation, but he doesn’t care. He has made you rich. He wants answers now. You leave the pool and head up to your room. It’s time to get to work.