Repercussions of an offer for a famous public company by an unkown one?

January 9, 2006 8:19 AM

What are the repercussions of an offer for a famous public company by an unknown one?

I am looking to take a small publicly traded company, and aquiring another public company (or at least making an offer on it) which is trading on a larger exchange.

I am looking for more information on how such an offer would be looked upon the the general market?

if the company I am interested in is undervalued, and I bring to the table with my all stock offer a compelling story what I feel I can do to create more value for the shareholders of that company, do I have a shot?

And how would the media look at such a tender offer? And if it did not succeed, how would it affect my company and its publicity? negatively?

I'm thinging along the lines of, hypotetically, issung an offer for "JetBlue Airways", with a premium over the current price per share payable in my own companie's stock, with a compelling reason as to how I was going to make the company more money...

For example...

"We feel that the JetBlue name, which is mentally associated with a pleasant, economical, experience, could be leveraged into other industries, such as Insurance. Often times, people are fed up with their Insurance Agents and feel like they are getting "ripped off" (no offense to insurance agents on MF!)...

"therefore, we propose such extension of the JetBlue Brand... JetBlue Insurance Agency will be synonomous with all the "feel good" vibes associated with JetBlue Airways, and we feel would immediately capture a large market share in the Insurance Industry.

Cross Promotion opportunities also abound in inflight advertising..."

I am curious as to what the reaction to such an offer, and its potential repercussions (both positive and negative) to my company.

If it fails, as many offers do, would my company still benefit from the publicity? Would I get a serious response from the company or media?

Thanks for the brain pickin'!

posted by Izzmeister to work & money (21 comments total)

I find it kind of odd that you're think about about performing such a complex financial transaction without some background on similar transactions.

Anyway, it depends a bit on the "larger" company. For example, the Hudson's Bay Company here in Canada has been a real dog as of late and is quite ripe for takeover. It is, however, a national icon, predating Canada itself, so there's more than a little press associated with people sniffing around it. It would be tricky to restructure in a way that would be well-received by the general public.

Eatons, on the other hand, a similar Canadian retailer, disappeared with nary a sound when Sears bought it out. (I leave you to decide whether either of these anecdotes is relevant to your situation).

The real issue is whether or not you really do add value. The market will give you some grace (IMO), but if they sense that the financials are poor, they'll drop you.

Brand extension, the example you give, is generally regarded by marketers as a bad thing. Ries & Trout would advise against extending the JetBlue brand to insurance sales.

In my extremely limited experience, the only times I hear about people doing this kind of thing is to go public (a reverse take-over) or to move up to a better exchange (Toronto Venture to TSX for a canadian example). Most takeovers seem concerned with cost cutting and not expansion or improving brand image (except to cannabalize it).
posted by GuyZero at 8:34 AM on January 9, 2006

I suppose one of the deciding factors would be if the brand identity of the first company had any traction in the realm of the second company.
To use your example, I seriously doubt that the JetBlue brand would have much traction in the insurance arena. Now, JetBlue in a semi-allied field...car-rental, for instance...might have legs that investors could go with.
posted by Thorzdad at 8:35 AM on January 9, 2006

if the company I am interested in is undervalued, and I bring to the table with my all stock offer a compelling story what I feel I can do to create more value for the shareholders of that company, do I have a shot?


How are you providing value? You're offering your shares for target's shares? And then you're running NewCo?

Unless I misunderstand you, this idea has no legs.
posted by Kwantsar at 8:47 AM on January 9, 2006

At best, you might get a cross-marketing deal this way. Established exchange-traded companies don't trade their shares for tiny unknowns because it seems like a nice idea.

At the very least, you should have financing to buy out enough shares to control the target - a hostile takeover. If you want to do the transaction nicely, you need a good story (as you are proposing above). But you need to market that story to the shareholders of BigCorp so they will vote to accept your offer and your cash.

Also, as GuyZero suggests, reverse takeovers in order to gain exchange listing usually occur when a small healthy company buys out the shell of a failed (formerly larger) company that is about to be delisted.
posted by b1tr0t at 8:57 AM on January 9, 2006

Probably one of the most famous attempts to do as you described, at least in the overall public amusement and derision it generated, was when Zapata tried to take over Excite back in 1998. I remember them hooting on CNBC about the "fish oil" company aiming for the (at the time) big Internet portal company, and it was pretty much the same story in the other financial media. A couple of the many stories still on the web about the offer are here and here. At the time, Zapata believed that Excite was undervalued and they, too, had "compelling reason[s] as to how [they were] going to make the company more money" .

Despite the resounding rejection, Zapata survived the humiliation and remains a small publicly-traded company to this day. Later on, Excite did the stereotypical Internet company merges and ultimate flameout.

Of course, your plans may fare much better. They could hardly fare worse.
posted by mdevore at 8:59 AM on January 9, 2006

Well, first you should probably hire someone who does this kind of thing. They have "mergers & aquasition" lawyers, who are I'm sure very expensive.
posted by delmoi at 9:03 AM on January 9, 2006

This is the type of question that strategy consultants get paid lots of money to answer. I find it a bit surprising that you're asking it here as well. Without knowing details around the industries and companies involved (unless you are indeed an insurance company taking over an airline) it's patently impossible to give sound advice that's worth listening to.

That said, one generic point: smaller, "unknown" companies take over larger companies all the time, but they are generally in the same industries; Manulife (effectively unknown to the general public in the US) and John Hancock is the first that comes to mind. A cross-industry merger of this sort would be odd, unless your company already has subsidiaries in other industries or is a holding company, etc.
posted by lazywhinerkid at 10:46 AM on January 9, 2006

King Win Laurel, a Chinese guy running a company from his home, Made an offer for exxon not long ago.

http://www.cfo.com/article.cfm/5106422/c_5105721?f=archives&origin=archive

his offer was (obviously) deemed rediculous.

a chinese guy, living in a huge complex paying $200 rent, no phone number, submitting a typo-ridden offering to the SEC to purchase Exxon...on Holloween....!

But, If I recall correctly, at one point North Fork Bank tried to take over "Dime Savings Bank" (later aquiried by WaMu) using the cash that dime had on hand to und the transaction.

If the offer doesnt work, would it at least, if well prepared, by a small public company, a real firm, with real ideas?

and if not, could it generate, at the least, publicity for the smaller company, making its image and future possible offers looked upon as a "heard of small agressive firm which made the failed offer for XYZ Co"...

or general market publicity and perception, or negaitive publicity that could be converted to positive publicity for the company?

I love the information I am getting, such as the JetBlue "Car Rental" extension working over the "Insurance Extension"...

Brain Grease.... aaah!
posted by Izzmeister at 10:52 AM on January 9, 2006

You need to stop talking about this online and talk to a lawyer immediately. Doing otherwise could be a violation of the securities laws governing tender offers.
posted by monju_bosatsu at 10:53 AM on January 9, 2006

Are you by any chance taking a corporate finance class? Is this a class assignment, paper topic?
posted by caddis at 10:57 AM on January 9, 2006

Well, there was that unknown (at the time) dude from Alabama who bought MCI awhile back. How'd that turn out? Oh yeah, I think he's in jail now. But still, an unknown dude did buy a big well-known company, so I guess it could happen. Probably not without big piles of cash, though.
posted by spilon at 11:05 AM on January 9, 2006

I worked on a handful of takeovers and I'll say that co-branded insurance is not a "compelling story" and is a pretty absurd reason for buying a company. If you really want to sell branded insurance, there are infinitely easier ways to do it.

I hope this is for a school project, because you sound wildly unprepared for the kind of PR/legal/corporate governance shitstorm that occurs after a (credible) offer is made public.
posted by milkrate at 12:09 PM on January 9, 2006

I was using insurance as an example, picked it out of a hat.

How would an offer of takeover of a troubled company such as Blockbuster by a small public unkown (say, OTCBB traded), who would file a tender offer with ideas as to how they would turn around the company?

Let's say I decided to try Blockbuster Video. (all hypothetical!)

I would file the tender offer with the SEC, explaining the transaction.

I would create a detailed website showing what my company feels I can do for the company that the current management fails at, and what I would do differently.

(For example: Sign a Deal with Domino's Pizza to deliver DVD's within the hour. Zap netflix with speed to consumer.)

the two questions, seperately:

1) How would the media react to such an offer, and how would they report on it? and How would the "upstart" be percieved, in your (each of you individually's) eyes? as a joke or as a intruiging propositin of fresh blood that has new ideas but still wants to leave the existing management in place, just to make them "think fresh"?

2) How would the company and it's shareholders of a troubled company respond to such an offer?

and if the offer failed (a possibility, after all!) how would the failed bidder be percieved? worse then when it was an unkown?

Or would Media start looking at my company in a different way? Like a company to keep an eye out and watch going forward?
posted by Izzmeister at 12:37 PM on January 9, 2006

I find your question a bit broadly worded. How would the press react to a takeover bid? It's like asking how a woman would react if I asked her to sleep with me - it would kind of depend on who, when, where and why.

This question is verging on the ridiculous. Be specific. The short answer is that is the target company has shitty financials, shareholders will welcome anyone who has a decent chance of turning things around. I can think of no examples where this happened because of a crazy marketing idea. You can probably find lots of example involving this guy and other people who use similar tactics.

Oh - and create a website explaining what you're up to? You think investment bankers read websites?
posted by GuyZero at 1:01 PM on January 9, 2006

Oh - and create a website explaining what you're up to? You think investment bankers read websites?

no, but media people and "plain shareholders" do...

The investment bankers read the SEC filing.
posted by Izzmeister at 1:29 PM on January 9, 2006

This question is verging on the ridiculous. Be specific. The short answer is that is the target company has shitty financials, shareholders will welcome anyone who has a decent chance of turning things around.

and do you think that in the probable event the bid was rejected, would my company then be better off then before I made the offer?
posted by Izzmeister at 1:36 PM on January 9, 2006

I am really gaining alot of insight and good information from your responses.

and no, this is not a class project...
posted by Izzmeister at 1:37 PM on January 9, 2006

and do you think that in the probable event the bid was rejected, would my company then be better off then before I made the offer?

Rather the opposite, I'd say, since you've wasted time or money preparing the offer that could have been better spent doing whatever it is your company does to make money. At best it's a no-op.
posted by kindall at 1:50 PM on January 9, 2006

and do you think that in the probable event the bid was rejected, would my company then be better off then before I made the offer?

You should probably speak to a PR firm about this. They might be able to come up with a better way to raise awareness about your company that entails less risk. My gut feeling is that you should have more knowledge of the M&A process and more confidence in how an offer would turn out than any of AxMe's armchair investment bankers before you engage in such a stunt.
posted by b1tr0t at 3:35 PM on January 9, 2006

What you really want is for JetBlue to buy your company and then hire you as CEO. There is no real way for you to sneak up on them and acquire the company (at least, not unless you have something of real value to offer shareholders - namely, cash).

JetBlue has plenty of options when it comes to mounting a hostile defense and unless you're a seasoned takeover expert (or have millions upon millions to pay top bankers/lawyers, who would never agree to work for you anyway), you have no chance at a true hostile approach. Things may seem easier if you have the board of directors and a large majority of shareholders on your side, but you have to remember that the board has a fiduciary duty to the minority shareholders. This means that they are required to negotiate a fair price for the company (and board/management control is consider here as well).

At the end of the day it just doesn't sound like you're really bringing anything to the table. Unless you're offering cash, significant assets or an optimized capital structure, the reverse merger just isn't very attractive. You'd have to get everyone to buy into your strategy - and if you can do that, you might as well just have JetBlue hire you and buy your little company. You'll save millions in banking and legal fees, not to mention avoiding all the headaches of shareholder meetings and all that mess.

Oh - and create a website explaining what you're up to? You think investment bankers read websites?

Hey, I read websites and I used to be a banker! (But not anymore, and none of the above should be seen as actual advice.)

Let's say I decided to try Blockbuster Video. (all hypothetical!)

Ever heard of Carl Icahn? He did Blockbuster already.
It took him months of vicious negotiations and proxy battles before he got his board seats. He also purchased a big stake in the company - with cash. And, he's a big time name in takeovers. So, if he had that tough of time, believe me, you're fucked.
posted by mullacc at 4:38 PM on January 9, 2006

A friend of mine did this at the height of the dot-com mania. His little private dot-com merged with a public company in a different business, and they rebranded the company and relaunched it as a dot-com play.

The stock went from 2 to 38 in the space of 3 months, and they launched a secondary offering to raise capital for the new strategy. Once the principals had cashed out, the company then spent two years burning through the cash (mostly spent on high salaries), and finally flamed out in typical dot-com fashion. A rocking good scam for everyone involved, except for the public investors and the employees holding stock options.

The deal was floated not by selling it to the media, but by getting the analysts and institutional investors on board first. The reverse takeover worked not so much because of investors' faith in the new management's plans, as because of the difference in valuation between companies in the old business and dot-coms. Back then, if you had a compelling story as to why the stock price would rise, it didn't matter whether people actually believed in your business plan or not.
posted by fuzz at 5:07 AM on January 10, 2006