TXU - how quickly can you raise the white flag?

Towards the end of last week a bid by leveraged investment funds for the US utility company was announced and just one weekend later the board and management are already raising the white flag and agree to the terms of the buy-out offer.

It is surprising - to say the least - that a substantial business in a crucial sector of the economy can be 'taken out' in such a speedy fashion.

Should management and the board only be interested in giving shareholders access to a quick profit or should they manage the business with a longer-term perspective and leave it to the market whether or not control of the company passes to another set of shareholders?

Pro-Gov argues that in many cases the takeover terms on offer to the existing shareholders allow bidders to take control without being forced to pay an adequate premium.

The existing management is also incentivised to accede to buy-out terms too quickly as their golden parachutes and outstanding share options are crystallised in case of a transfer of control. In addition, management may be softened up by the promise of lucrative new terms of employment and share options by the new owners.

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