IIM RANCHI

The Wm. Wrigley Jr. Company

Mergers, Acquisitions and Corporate Restructuring

Ankur Saurabh (M012/12) Tarun Gupta (M044/12) Rahul Gupta (M108/12)

Table of Contents
1 2 3 4 Case Summary....................................................................................................................................... 2 Identification of Problems .................................................................................................................... 2 Theories to Solve problems .................................................................................................................. 2 List of alternative Solutions to the Problem ......................................................................................... 2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 5 6 Shareholders Rights Plan .............................................................................................................. 2 Voting Rights Plans........................................................................................................................ 3 Staggered Board of Directors ........................................................................................................ 3 Greenmail...................................................................................................................................... 3 White Knight ................................................................................................................................. 3 Increasing Debt ............................................................................................................................. 3 Making an Acquisition................................................................................................................... 3 Acquiring the Acquirer .................................................................................................................. 4

Analysis and Identification of the Right Alternative ............................................................................. 4 Findings and Recommendation ............................................................................................................ 4

1 Case Summary
Aurora Borelis is a hedge fun with about $3 billion under management and an investment strategy that focused on distressed companies, merger arbitrage, change-of-control transactions and recapitalizations. They identify opportunities for a corporation to restructure, invest significantly in the stock of the target firm, and then undertake a process of persuading management and directors to restructure. They have decided to work on the assumption that wrigleys could borrow $3 billion at a credit rating between BB and B, to yield 13%. Chandler, an associate is working to carve out a plan for wrigleys.

Aurora Borealis LLC is an activist Hedge fund. They are trying to buy a large stake in the company and thereby force the management to reorganize the capital structure by raising the debt and using it to pay the dividends or b

2 Identification of Problems 3 Theories to Solve problems

Below mentioned are some of the pointers that should be kept in mind while designing the defensive strategies for the company: 1. The takeover policies employed should protect investors and maintain fair and orderly markets. 2. The management defence strategy should be I place to avoid being pushed into a hurried takeover defence. 3. The defences should ensure consistency with the exchange by examining the takeover practices of entrepreneurs and market professionals. 4. Increase the involvement of board at an earlier stage so that they will focus on management plans and strategies for building shareholders wealth. 5. The long-term perspective should be kept in mind while planning the defence strategies

4 List of alternative Solutions to the Problem

4.1 Shareholders Rights Plan
The most common form of takeover defence is the shareholders' rights plans, which activates at the moment a potential acquirer announces its intentions. Under such plans, shareholders can purchase 2

additional company stock at an attractively discounted price, making it far more difficult for the corporate raider to take control.

4.2 Voting Rights Plans

Companies may also implement a voting-rights plan, which separates certain shareholders from their full voting powers at a predetermined point. For instance, shareholders who already own 20% of a company may lose their ability to vote on such issues as the acceptance or rejection of a takeover bid. The presence of corporate predators may also trigger super-majority voting, which requires that a full 80% of shareholders approve a merger, rather than a simple 51% majority. This requirement can make it difficult - if not impossible - for a raider to gain control of a company.

4.3 Staggered Board of Directors

A staggered board of directors (B of D), in which groups of directors are elected at different times for multiyear terms, can challenge the prospective raider. The raider now has to win multiple proxy fights over time and deal with successive shareholder meetings in order to successfully take over the company.

4.4 Greenmail
A company may also pursue the greenmail option by buying back its recently acquired stock from the putative raider at a higher price in order to avoid a takeover. This technique was popular during one of the final mergers and acquisitions trends in the 1980s, and it typically comes with the requirement that the raider not pursue another takeover attempt.

4.5 White Knight

White knight involves, a strategic partner that merges with the target company to add value and increase market capitalization. Such a merger can not only deter the raider, but can also benefit shareholders in the short term, if the terms are favourable, as well as in the long term if the merger is a good strategic fit.

4.6 Increasing Debt

By increasing debt significantly, companies hope to deter raiders concerned about repayment after the acquisition. However, adding a large debt obligation to a company's balance sheet can significantly erode stock prices.

4.7 Making an Acquisition

Make an acquisition, preferably through stock swaps or a combination of stock and debt. This has the effect of diluting the raider's ownership percentage and makes the takeover significantly more expensive.

4.8 Acquiring the Acquirer

Turn the tables on the acquirer and mount a bid to take over the raider. This requires resources and shareholder support, and it removes the possibility of activating the other defensive strategies. This strategy is called the Pac-Man defense.

5 Analysis and Identification of the Right Alternative 6 Findings and Recommendation