Are public companies sold too cheaply?

Takeovers of public companies make a lot of people happy. Shareholders can sell at a price that seemed out of reach, management gets new - and usually better - incentives or jumps ship thanks to generous golden parachutes. Investment Bankers make fat fees and all in all - thanks to supposed higher efficiencies created by the new owners - everyone is left better off.

Recently, however, some critics argued that buy-outs by Private Equity Investors have some less desirable aspects. In the US there is even a possibility that club-deals by several large buy-out firms may have restricted competition and allowed them to pick up companies for lower prices than would otherwise have been the case.

Other factors pushing companies into the hands of new owners are: managements that are promised cut-price equity stakes or benefit from golden parachutes and option schemes that pay out in the event of a takeover or stake building by investors that have no interest in the long-term future of the business.

We would argue that some simple adjustments to company law might make it possible that the public shareholders would get a higher price in successful takeover attempts. A limit to the number of shares that each holder can vote and a minimum holding period before shareholders can vote with their shares would limit the impact of stake building by hot money that is only to happy to sell out for a small profit.

Conflicts of Interest in Buy-out Vehicles

The booming demand for investing in 'Private' Equity funds allowed a few of the more prominent Buy-out firms to launch listed closed-end funds. One has to assume that the shares on offer were mostly bought by smaller institutions as well as retail investors that would otherwise not have been able to get into the funds that are launched by the major players in the industry.

Apart from the poor aftermarket performance of the shares (not surprisingly they now trade at a discount to net asset value) we are concerned about how large firms like KKR can manage the conflicts of interest if they continue to manage traditional funds that are mostly placed with their regular institutional investors.

The only fair method would be to allocate new holdings between the various funds under management, ideally pro-rata on the basis of the individual fund's total assets.

Do shareholders get fair value in Buyouts?

Today's announcement that Hospital Operator HCA has agreed to be acquired by an investor group again raises the question if public shareholders really are well served by the procedures that are currently applied during these transactions.

When management (which often benefits from takeovers either due to accelerated option vesting, Golden Parachutes or cut-price stakes in the succeeding corporate entity) and the board engage in secret negotiations that lead to a take-out price that is close to the upper end of a decade-long trading range of the company's stock it sets alarm bells ringing.

In our opinion, the price offered to all shareholders should be determined by the highest price that the bidders have to pay to get the required percentage holding that would allow them to control the company.

A proper auction process and clear rules about which shares the bidder may vote in any company meeting are necessary to reduce the 'Bidder's Surplus' as much as possible and minimise the risk that public shareholders sell out at too low a price.

Should Bid targets pay break fees?

We do not think that bid targets should be allowed to enter into binding agreements to pay any indemnity to the bidder until the shareholders have been able to formally vote on the merger/sale proposal.

All too often, the amounts that are agreed are way above any reasonable costs that the bidder may have incurred.

One has to assume that this type of agreement more often than not is intended to discourage competing bids. As such, break-up fees are not in the interest of the company's shareholders.

Deutsche Boerse - Round 2

We still have not received a reply from the prominent investment firms that fought against the Deutsche Boerse bid for the London Stock Exchange.

We wholeheartedly supported their campaign for the right of Deutsche Boerse shareholders to be consulted over the bid. But we are also firmly in the camp of those who think that this right should be firmly enshrined in Europe's Corporate Governance Rules. So when we made inquiries about the commitment of some of these firms and did not get a clear statement supporting this principle we got a bit suspicious. Was this campaign only a tactical ploy to allow individual funds to make more money?

Maybe they should publish a history of their their dealings in the shares of Deutsche Boerse and the LSE before, during and after the bid attempt?

Should Bidders get privileged access to Company Books?

'Private' Equity firms do not like to make hostile bids, in many cases their investors do not allow them. So while it is understandable that VC firms try to get a chance to do due diligence before making a firm offer we think that this practice should be examined. Does it not give a clear advantage to the bidder? He gets something that is very valuable for free and should at least have to pay a fair price for this information. Existing Shareholders - Retail as well as Institutional Shareholders - are required to rely on publicly available information and are thus kept at a disadvantage.

LSE sees off Deutsche Boerse

Is the defeat of the bid by Deutsche Boerse for the London Stock Exchange really a triumph for shareholder democracy at the Financial Times claims?

Everyone familiar with the listed sector in Germany will be aware that shareholder groups such as DSW have for a long time been in the forefront of the fight for fair treatment of shareholders.

The sudden emergence of a new and vociferous group of 'activist' shareholders has in our opinion not really improved the situation of the public shareholders.

Yes, a battle has been won. But on what principle? Has anyone really objectively analysed the arguments for and against a bid? Have the leaders of the 'coup', such as Atticus or TCI and their followers such as Fidelity or Assicurazioni Generali really been guided by the principle that major acquisitions should be approved by the shareholders as a whole?

Only then could we say that a victory has been won for shareholder democracy. Since the LSE bid came to light a number of major acquisitions and mergers have been announced. It would be desirable that they would receive the same amount of scrutiny and passionate argument that was given to the LSE/DB bid.

It would also make interesting reading to have the disclose the dealing records of the major participants in the discussion for and against the LSE/DB combination. If anyone had bought the DB shares shortly after the announcement of the bid, should