Issues after acquisition:
As we know that the transactions of mergers and acquisitions are monitored and regulated by the regulatory body of each country and it differs from country to country. This is done to keep the competition intact and reduce the dominancy of monopoly kind of market situation. If the acquirer is getting more than 65% shareholding in Target Company so it gets the control as well become parent company of the target and regulatory body does so to avoid the dominancy.
Here, in this case as both the companies were in relative kind of businesses and the FTC was of the opinion that this will lead to the dominant position by acquiring the largest coal producer firm and it will affect the competition in coal industry so this regulatory body has to keep the competition intact and for doing this, they have cancelled the deal of acquisition and merger after few years by winning the case after so many allegations and efforts. So, in the end acquirer has to perform divestiture of Peabody.
There were the four options available for the procedure of divestiture of Target Company. 3 out of 4 options were publically offered which were not feasible for the acquirer company as they would be getting very lower value on the basis of historical performance of company whereas the current performance is pretty well which will undervalue its share prices in the public market. Four options consist of publically offering the shares of Target Company, offering right issue to the existing shareholders of acquirer or parent company at a discounted prices, spin off the shares of Target Company with Acquirer and last but not the least was to sale the Target Company via private ownership.
Yes they were able to make the private offering of the shares to the privately owned firms whereas the public offerings options as well as spin off was criticized because the historical position of the Target Company would have left the trading or offer prices to be very lower than the actual current price which would have resulted in the opportunity cost for the company as they could have received better amount of deal by giving their ownership rights to the privately owned companies.
Problems in mid-1977:
As the company was sold to the private owners and it received an amount of around $29 per share from its sale which was even greater than the average price of per share of $28 so it would have been resulted in a less cash generation by distributing the cash to its shareholders because this idle cash be used to expand its business and generate more profits rather than distributing cash right away to its shareholders.
Some of the problems consists of the issues created by some of shareholders to directly distributing the sale proceeds to its shareholders and there was coercion used by its directors as well. Moreover, they were also forcing the company to get it done via buy back of shares or distributing the money in the form of dividends ad rumors spread about the worst position of Kennecott that the company would be acquired by another company………………..
This is just a sample partial work. Please place the order on the website to get your own originally done case solution.