Nero Questions

6.) a. Nero’s management has a substantial ownership interest in the company, but not enough to block a merger. If Nero’s managers want to keep the firm independent, what are some actions they could take to discourage potential suitors?

If Nero’s managers want to keep the firm independent, some actions that the company could take to discourage potential suitors include the following:

1. The Management can use a Super-majority amendment which is a defensive tactic requiring that a substantial majority (usually 67% and sometimes as much as 90%) of the voting interest of the outstanding capital stock be approved for a merger.

2. Another defense tactic is using the Pacman Defense which is when a company that is threatened with a hostile takeover "turns the tables" by attempting to acquire its would-be buyer.

3. Another defense tactic is using the crown jewel defense tactic which would involve selling the company’s most prized and coveted assets which are known as the crown jewels. The act reduces the company’s attractiveness to the hostile bidder.

4. Another defense tactic is using leverage recapitalization which would include replacing a majority of the company’s equity with debt securities which consists of senior bank debt as well as subordinated debentures.

5. Other defense tactics include: Buyback, Use of Poison Pills, Applying a ESOP (Employee Stock Ownership Plan).

b. If Nero’s managers conclude that they cannot remain independent, what are some actions they might take to help their stockholders (and themselves) get the maximum price for their stock?

Some actions the company executives might take to get the maximum price for their stock is find a merging company known as a “White-Knight-Merger” which would be more of a friendly merger therefore the merging transition would be less hostile. Additionally, the company would account for the sales at the time of the merge. Higher sales are critical before a merge because the company looks more attractive to the acquiring firm and therefore the acquiring company’s offer would be higher.

c. If Nero’s managers conclude that the maximum price others are willing to bid for the company is less than its “true value,” is there any other action they might take that would benefit both outside stockholders and the managers themselves? Explain.

Some actions that Nero’s managers could take to ensure that they would benefit both outside stockholders and the managers themselves is by guaranteeing the stockholder would receive a higher dividend and by making sure that the compensation requirements are strictly met by the acquiring firm. Another action that the managers could take is by implemented the Golden Parachute which would protect the internal team (workers) by guaranteeing a substantial payment or any other financial compensation if the managers were dismissed