THE STEEL WAR- MERGER BETWEEN ARCELOR AND

MITTAL

SUBMITTED TO- PROF. VISHARAD SHUKLA

MODULE- MERGERS AND ACQUISITIONS

SUBMITTED BY – PRIYANSHI GANDHI AND NIDHI HADVAID

Table of Contents
INTRODUCTION ......................................................................................................................3
BACKGROUND OF MITTAL STEEL INDUSTRY ..................................................................3
BACKGROUND OF ARCELOR STEEL INDUSTRY ..............................................................4
ABOUT ARCELOR-MITTAL STEEL.......................................................................................4
THE MERGER PROCESS ........................................................................................................6
SYNERGIES CLAIMED ...........................................................................................................8
SUMMARY TERMS AND CONDITIONS OF THE OFFER .................................................12
TAKEOVER DEFIANCE ........................................................................................................14
STRUCTURING OF THE DEAL ............................................................................................15
ACCOUNTING AND ADJUSTMENT ....................................................................................18
SUBSEQUENT PERFORMANCE ..........................................................................................19
CONCLUSION ........................................................................................................................21
BIBLIOGRAPHY.....................................................................................................................23
INTRODUCTION

Arcelor Mittal is the largest steel company in the world. The company was founded in 2006 when
Arcelor and Mittal Steel company merged. The company is headquartered in Luxemburg City, in
southern Luxemburg, the former seat of Arcelor. Arcelor Mittal produces as much as 110 million
tons of steel a year, about 10 percent of world output. The company also controls the biggest bulk
handling port in Mexico, from where it imports iron ore and exports semi-finished steel products.
Laxmi Mittal (owner of Mittal Steel) is the president and chairman. Mittal's family holds a 43.6%
stake in this company. Counting all shareholders, 50.6% will be former Arcelor shareholders and
49.4% will be former Mittal shareholders.

Arcelor-Mittal steel merger has been one of the most fascinating story of corporate merger that
redefined the nature of global steel business. The newspapers were replete with the development
of events that led to the merger and its implications for people across continents. Even today in
India a book or a simple talk on corporate merger and acquisition would not be complete without
the mention of this intriguing corporate takeover. It has been considered as the most talked about
corporate merger in India that attracted popular interest.

BACKGROUND OF MITTAL STEEL INDUSTRY

Mittal Steel co. was formed by the merger of LNM Holding and ISPAT International. Mr. Lakshmi
Mittal who is the CEO of the company, along with his family holds 88% of the company and its
headquarter was in Rotterdam Netherland. The company produced words largest steel in terms of
volume and also largest turnover which merged with Arcelor Mittal. The company established a
mile stone in the steel world industry.

Mr. Lakshmi Mittal founded Mittal Steel in 1976 in India. After a few years, Mr. Mittal found that
it would take him long to grow to a significant size and wanted a way to grow fast. He found that
there were various steel companies around the world, which had been performing badly, due to
cyclical nature of the industry and poor management of the companies. He started acquiring these
companies and turning them around through better management and economies of scale. In 2005,
when Mittal Steel acquired the American steel company, ISG, it overtook Arcelor as the world’s
largest steel maker, in terms of output. Towards the end of 2005, it made up its mind to acquire
Arcelor, the second largest steel producer by output and the largest by turnover. Mittal Steel was
headquartered in Netherlands.

Mr. Mittal, aged 55 and Mr. Dollé, aged 63 shared the same vision. They believed that the steel
industry was too fragmented (top 5 companies controlled just 20% business) and was being
exploited by the raw material / commodity producers (top 3 iron ore companies controlled 70%
business) as well as consumer companies (top 5 automobile companies control 70% business).
Consolidation was required and both wanted to emerge as the leader once it gets achieved. Both
had contributed their fair share to this process of consolidation in the industry. Their aim was to
do things in a way that, before they retire, the companies reach a dominating position in the
industry. And that they are considered responsible for that leading position of their companies.

BACKGROUND OF ARCELOR STEEL INDUSTRY

Arcelor was created in 2002 through merger of three major European steel companies, Arbed
(Luxembourg), Aceralia (Spain) and Usinor (France). The idea was to leverage their technical,
industrial, and commercial resources in order to create a global leader in the steel industry. It was
headquartered in Luxembourg and Mr. Guy Dollé was the CEO. Arcelor employed thousands of
people across 60 countries. Most of the employees were from Western Europe and in countries
with a traditionally strong labor union. Arcelor were still in the process of integrating the business
and were neither expecting nor ready for any deal, let alone a takeover offer.

ABOUT ARCELOR-MITTAL STEEL

ArcelorMittal is the world's largest steel company, with operations in more than 60 countries. The
company was formed in 2006 by the merger from Arcelor and Mittal Steel and is headquartered
in Luxembourg City. Additionally, the company ranks 28th on the Fortune Global 500 list. They
produce a range of finished and semi-finished carbon steel products and stainless steel products.
They provide their products to the automotive, appliance, engineering, construction, and
machinery industry in approximately 170 countries. ArcelorMittal predominates in major global
steel markets, including automotive, construction, household appliances and packaging, with
leading R&D and technology, as well as sizeable captive supplies of raw materials and outstanding
distribution networks. With an industrial presence in over 20 countries spanning four continents,
the Company covers all of the key steel markets, from emerging to mature.
THE MERGER PROCESS

Mittal Steel Announcement Offer for Arcelor Merger proposal to create first 100 million ton plus
steel producer US$40 billion merger marks step change in steel sector consolidation.
Mittal Steel N.V. (“Mittal Steel”) on 27 January, launched an offer to the shareholders of Arcelor
SA (“Arcelor”) which would create the world’s first 100 million ton plus steel producer. The offer
valued each Arcelor share at €28.21 which represented a 27% premium over the closing price and
all time high on Euronext Paris of Arcelor shares on 26 January 2006, a 31% premium over the
volume weighted average price in the preceding month, and a 55% premium over the volume
weighted average share price in the preceding 12 months.This offer valued Arcelor at an equity
value of €18.6 billion on a fully diluted basis.

The new company was expected to have:

– Unprecedented scale, scope and synergies

– Pro-forma* 2005 annual revenues of approximately US$69bn and EBITDA of

US$12.6bn (*IBES estimates)

– Pro-forma market capitalization of approximately US$40 billion

– Leading positions in NAFTA, EU, Central Europe, Africa and South America

– Expected synergies of US$1 billion from purchasing, marketing and manufacturing efficiencies

– Exceptional raw material resources with a high degree of iron-ore self-sufficiency

– Reduced volatility through geographic and product diversification

– Security of long-term contracts through high value-added products

– Low cost profile and high growth prospects from developing markets

– Leading position across a range of key product segments

– Ability to supply customers on a global basis

– A dividend policy representing c. 25% of earnings over the cycle

Under the terms of the offer, Arcelor shareholders were expected to receive 4 Mittal Steel shares
and €35.25 cash for every 5 Arcelor shares (equivalent to 0.8 Mittal Steel shares plus €7.05 cash
for each Arcelor share). In addition, they were to have the right to receive a cash or stock mix in
any proportion they elect, provided that 25% of the aggregate consideration paid to Arcelor
shareholders was paid in cash and 75% in stock. The maximum amount of cash to be paid by Mittal
Steel was to be approximately €4.7bn and the maximum number of Mittal Steel shares to be issued
were approximately 526.6 million, assuming the conversion of the outstanding Arcelor
Convertible Bonds (2017 OCEANEs).

Mittal Steel also announced that it had entered into an agreement with ThyssenKrupp AG
(“ThyssenKrupp”) to resell to ThyssenKrupp all the common shares of Dofasco Inc (“Dofasco”)
that Arcelor purchases in its pending tender offer for Dofasco or later, at a price equal to the Euro
equivalent of C$ 68.00 per share, adjusted based on changes in net financial debt and net working
capital from the date of acquisition of Dofasco by Arcelor and the date of resale to ThyssenKrupp.
SYNERGIES CLAIMED
1.1 Step change in steel sector consolidation

The combination of Mittal Steel and Arcelor represents a step change in the consolidation of the
steel sector. The combined group was expected to have approximately 320,000 employees
worldwide, annual sales of more than US$69 billion and annual crude steel production of
approximately 115 million metric tons, which represents a global market share of approximately
10 per cent by volume. This transaction was expected to create a steel company with unprecedented
scale, a strong global presence and a broad based product offering. This unique platform was
expected to provide the combined company with unrivalled financial strength and strategic
flexibility to pursue growth and value creation opportunities. Despite a trend towards increasing
consolidation over the past few years, the global steel industry remained relatively fragmented
compared to end-market customers and raw materials suppliers. Recent consolidation has led to
increased focus amongst producers on adjusting production to market conditions. The combination
of the top two steel companies in the world was expected to represent a further step towards
achieving a sustainable operating environment for the steel industry.

1.2 Expanding geographic footprint with leading positions in a number of regions

The geographic overlap between Mittal Steel and Arcelor was limited. This combination was
expected to create a truly global steel company with leading positions in the five main regions
(South America, NAFTA, European Union, Central Europe and Africa). Geographic
diversification was expected to reduce volatility for the enlarged group while presenting numerous
strategic opportunities. Through its diverse asset base in both emerging and developed markets,
the company was expected to be ideally placed to take advantage of multiple market opportunities.

Mittal Steel’s North American activities were to be complemented by Arcelor’s strong position in
Western Europe. These developed markets had expertise in producing highly value-added products
and provided opportunities for new product development. Mittal Steel had leading positions in
emerging markets in Eastern and Central Europe, Asia and Africa. These regions offered low cost
production, high growth prospects and in many cases, access to significant raw material reserves.

1.3 Strengthening the range of products and solutions for global customers
The enlarged group was expected to have leading positions in a number of product segments and
have the ability to supply customers across a range of geographic regions and in end-markets such
as automotive, domestic appliances, packaging, construction and oil and gas. The company was
also expected to have a strong value-added contract business which will allow for reduced pricing
volatility.
In the automotive sector, the new group was expected to be the leader in both the
European Union and NAFTA regions and will also have leading positions in South America,
Eastern Europe, Africa and Asia. In appliance and packaging, the group was expected to be the
leader in the NAFTA region and one of the leaders in the European Union. In construction, the
group will have a leading position in most of the markets it serves and a growing presence in the
oil and gas sector. The expertise of both groups in the various applications and end markets could
be combined to develop new market opportunities.

1.4 Maximizing opportunities with a global distribution and trading network

Mittal Steel and Arcelor together was expected to have the ability to optimize
production and distribution on a global basis. The international production base of the group was
expected to facilitate global sourcing of materials and products that can be directed to the markets
where they are ultimately required. The combined company’s access to a broad range of customers
enabled the group to capitalize on market opportunities and expand into new areas. The combined
company was expected to eliminate cross-border trade flows and thus generate substantial savings.

1.5 Increasing efficiency of the combined asset base through investment and operational
excellence

Mittal Steel aimed to maximize the value and opportunities within the combined portfolio of assets.
Major initiatives included:

(i) Leveraging Mittal Steel’s R&D capabilities for processing and product innovation
(ii) Improving productivity through global benchmarking and continuous improvement
programs across the network of operating units
 (ii) Maximizing industrial potential between units, for example through product specialization
by unit

1.6 Controlling input costs by maximizing the synergies from integration of

mining and steel making

Integration of mining activities with steel production was a key element of the group’s strategy.
The combined company was expected to be one of the five largest producers of iron ore worldwide
and also have direct ownership of DRI plants, coal mines, coke production and certain
infrastructure assets. The group was expected to have the opportunity to expand its mining
operations in order to reduce the dependency on third-party supplies of iron ore and coal. By 2010,
the combined group aimed to be about 50 per cent self -sufficient in iron ore.

1.7 Targeting operational synergies of US$1 billion

Target annual cost synergies were expected to reach US$1 billion before tax by the end of 2009.
The integration and restructuring costs to realize this level of synergies were expected to be
minimal. The industrial plan for the combined entity identified several synergies, primarily from
purchasing, marketing opportunities and manufacturing process optimization.

1.8 Maximizing financial opportunities

Based on the closing Mittal Steel share price on the New York Stock Exchange of US$32.30
(equivalent to €26.45 per share at an exchange rate of US$1.2214 per €1) on 26 January 2006, the
pro forma equity market capitalization of the enlarged group was expected to be approximately
US$40 billion and the free float was to be significantly increased to approximately 43% (assuming
100% acceptance of the Offer). The Group was expected to benefit from a lower cost of capital,
improved access to the capital markets, enhanced profile with investors and a high level of liquidity
for trading of the company’s shares. Finally, the financial resources of the enlarged company were
expected to provide the flexibility for the Group to pursue both internal and external growth
opportunities. Mittal Steel was committed to maintaining an investment grade rating.
SUMMARY TERMS AND CONDITIONS OF THE OFFER

Mittal Steel offered to acquire all outstanding Arcelor ordinary shares and Arcelor Convertible
Bonds (2017 OCEANEs), as follows:
– 4 new Mittal Steel shares and €35.25 in cash for every 5 Arcelor ordinary
shares.
– 4 new Mittal Steel shares and €40 in cash for every 5 Arcelor Convertible
Bond.

Holders of Arcelor shares in lieu of this mix of Mittal Steel stock and cash, could make the
following elections with respect to the consideration to be received:
– Elect to receive 16 new Mittal Steel shares for every 15 Arcelor shares; or
– Elect to receive €28.21 in cash for each Arcelor share.
Holders were required to make the same election for all Arcelor shares tendered, and either of
these elections may be made for all or some of the Arcelor shares to be tendered. However, these
elections were subject to proration and allocation procedure to ensure that 75% of the tendered
Arcelor shares were exchanged for new Mittal Steel shares and 25% were exchanged for cash.
If certain actions were taken by Arcelor including distributions or share buybacks
the consideration set forth above were to be adjusted accordingly. The offer was made for all issued
and outstanding Arcelor shares, as well as for all Arcelor shares that are held in treasury stock and
all Arcelor shares that were or were expected to become issuable prior to the expiration of the
Offer due to the conversion of Arcelor Convertible Bonds or the exercise of Arcelor stock
subscription rights.
The completion of the offer was to be subject to the following conditions:
(i) the number of Arcelor shares tendered to the offer represents on the closing date of the offer
more than 50% of the total share capital and voting rights in Arcelor, on a fully diluted basis
(ii) the extraordinary general meeting of shareholders of Mittal Steel approved the acquisition of
Arcelor as contemplated by the offer and the issuance of the new Mittal Steel shares; the Mittal
family which held 97% of the voting rights in Mittal Steel had undertaken to vote in favor of such
resolutions and
(iii) during the offer period, no exceptional events occur and Arcelor does not take any actions that
(in either case) would in Mittal Steel’s view alter Arcelor’s substance, including but not limited to
share repurchases, acquisitions or disposals of material assets and any distribution of dividends or
assets, whether such distribution is paid out of current earnings, retained earnings or reserves.
TAKEOVER DEFIANCE
Arcelor later implemented a white knight defense through a transaction structure contemplating
the issuance of shares to a friendly strategic partner (SeverStal of Russia), which was also a
technique allowed in certain jurisdictions in Europe (but not in the U.K.) and used in the U.S. Just
as Arcelor took actions to protect Dofasco with the S3, Arcelor believed that an opportunity to
acquire SeverStal was consistent with Arcelor’s corporate interest and should, if possible, be
presented as a viable alternative to Mittal Steel’s original offer, which Arcelor believed was an
inadequate offer. While Arcelor had a previous mandate from its shareholders to issue the Arcelor
shares proposed to be issued to Mr. Mordashov (SeverStal’s controlling shareholder), the Arcelor
Board felt it was important to give the shareholders an opportunity to express their opinion on the
transaction, in particular given the outstanding takeover offer from Mittal Steel. The Arcelor Board
called an extraordinary meeting of shareholders on June 30, 2006, to vote on the SeverStal
transaction. Unless more than 50% of the then outstanding Arcelor shares opposed the transaction,
the merger with SeverStal would proceed. While the 50% unwind mechanism was criticized by
the market, including institutional investors, the SeverStal transaction caused Mittal Steel to
increase the price of its offer and to deliver better overall corporate governance and other terms.
And in the end, the proposed SeverStal merger was unwound as over 50% of Arcelor’s
shareholders voted to unwind it.
STRUCTURING OF THE DEAL
The proposed transaction presented by the member Joseph Kinsch Chairman, Arcelor ,Lakshmi
N. Mittal Chairman & CEO, Mittal Steel, Gonzalo Urquijo SEVP-CFO, Arcelor, Aditya Mittal
President & CFO, Mittal Steel were as follows……..

Offer
• 13 Mittal Steel shares plus €150.6 cash for 12 Arcelor shares.

– Ability to elect to receive more cash or shares, subject to 31% cash and 69% stock paid
in aggregate.

– Very significant premium to Arcelor’s pre bid all time share price high.

– 10.1% further improvement in the offer based on latest MT share price.

– 7.0% further improvement in the offer based on 19 May revised offer.

• Values Arcelor shares at €40.4 as at 23 June close.

Conditions
• Minimum acceptance >50.0%

• No change in Arcelor or Mittal Steel substance during offer

Process:
• Expect to file revised offer shortly

• Closing of the tender offer expected to be extended by a few days beyond

5 July.

Key contract terms:

• Other offers

Arcelor agreed to accept no other offer for Arcelor shares unless it was a superior offer for
the entire share capital of Arcelor
 – No break-up fee required in contract

– If shares are issued under the Strategic Alliance Agreement, corporate governance rules
and certain other conditions terminate

• Standstill

Mittal family agreed to a standstill at 45% of share capital. Exceptions in certain circumstances

- consent of a majority of the independent directors or in case of passive crossing of such

thresholds

• Lock up

Mittal family agreed to a 5-year lock-up, subject to certain exceptions, including the right to
dispose of up to 5% of the share capital after the 2nd year.

High standards of corporate governance:

• Shareholder voting rights

– All shares with identical voting and economic rights: One share - one vote regardless of
holding period

• Composition of initial Board of Directors

– Mr Kinsch to be Chairman, Mr Mittal to be President

– Upon Mr Kinsch’s retirement, Mr Mittal becomes Chairman

– The Board of Directors will be composed of 18 members, all non-executive (majority

independent)

• 6 members from Arcelor

• 6 members from Mittal Steel

• 3 current representatives of existing Arcelor major shareholders

• 3 employee representatives

– After expiry of three year period, shareholders to elect Board of Directors

• Board Committees

– an Audit Committee composed solely of independent directors

– an Appointments and Remuneration Committee composed of 4 members, including the

Chairman, President and 2 independent directors

• Composition of Management Board

– The Management Board will be comprised of 7 executive members

• 4 current Arcelor executives, CEO to be proposed by the Chairman

• 3 Mittal Steel executives

ACCOUNTING AND ADJUSTMENT
Purchase price allocation

The Company was in the process of allocating the purchase price for its acquisition of
Arcelor. It should be noted that all of the purchase price allocation adjustments made and
reflected in the Company’s December 31, 2006, financials (Income statement and Balance sheet)
were still preliminary and could materially change as a result of the finalization of the purchase
price allocation process . It was expected that this allocation would be finalized in Q2 2007.

The Company recorded the following significant preliminary purchase price adjustments:
Inventory
Inventory was increased by $1.1 billion as of the acquisition date (August 1, 2006). The
pro forma income statement excludes the effects of this adjustment.

Tangible fixed assets

The Company is being assisted by an independent appraisal firm in valuing the tangible
fixed assets acquired and assessing the remaining useful lives of these assets. Based on
the preliminary estimates, the Company increased the value of the tangible fixed assets
acquired by $12.3 billion. The Company also assessed the remaining useful lives of
these assets and concluded that the assets acquired have a longer average remaining
useful life than previously estimated by Arcelor. The Company therefore estimates, on a
preliminary basis, the annual additional depreciation charge to be insignificant.
Goodwill
As a result of the preliminary purchase price allocation, the Company currently estimates
goodwill related to the acquisition of Arcelor at $6.6 billion. This amount is still preliminary and
could materially change as a result of the finalization of the purchase price allocation process.
SUBSEQUENT PERFORMANCE
Pro forma results twelve months ended December 31, 2006 versus twelve months
ended December 31, 2005

1. Arcelor Mittal pro forma net income for the twelve months ended December 31, 2006, was
$8.0 billion, or $5.76 per share, as compared with pro forma net income of $8.3 billion, or
$5.97 per share for the twelve months ended December 31, 2005.
Pro forma sales and operating income for the twelve months ended December 31, 2006,
were $88.6 billion and $11.8 billion, respectively, as compared with $80.2 billion and
$11.6 billion, respectively, for the twelve months ended December 31, 2005.
Total steel shipments for the twelve months ended December 31, 2006, were 110.5
million metric tons as compared with 102.9 million metric tons for the twelve months
ended December 31, 2005. Pro forma depreciation for the twelve months ended December
31, 2006, increased to $3.4 billion as compared with $3.3 billion for the twelve months
ended December 31, 2005.Pro forma net financing costs for the twelve months ended
December 31, 2006, remained flat as compared with $1.3 billion for the twelve months
ended December 31, 2005. Pro forma net financing costs for the twelve months ended
December 31, 2006, include a charge of $367 million OCEANES1 and a gain of $450
million resulting from a Canadian dollar swap. Pro forma income tax expense for the
twelve months ended December 31, 2006, increased to $1.7 billion as compared with $1.4
billion for the twelve months ended December 31, 2005. The effective tax rate for the
twelve months ended December 31, 2006, was 14.9% as compared with 12.6% for the
twelve months ended December 31, 2005. Pro forma minority interest for the twelve
months ended December 31, 2006, remained flat at $1.5 billion as compared with the
twelve months ended December 31, 2005.
Pro forma results three months ended December 31, 2006 versus three months ended September
30, 2006

1. Arcelor Mittal pro forma net income for the three months ended December 31, 2006, was
$2.4 billion, or $1.72 per share, as compared with pro forma net income of $2.2 billion, or
$1.58 per share for the three months ended September 30, 2006. Pro forma sales and
operating income for the three months ended December 31, 2006, were $23.2 billion and
$3.2 billion, respectively, as compared with $22.1 billion and $3.4 billion, respectively, for
the three months ended September 30, 2006. Total steel shipments for the three months
ended December 31, 2006, were 26.7 million metric tons as compared with 26.9 million
metric tons for the three months ended September 30, 2006. Pro forma depreciation for the
three months ended December 31, 2006, decreased to $875 million as compared with $910
million for the three months ended September 30, 2006. Pro forma net financing costs for
the three months ended December 31, 2006, was $4million income as compared with $352
million expense for the three months ended September 30, 2006, primarily due to a gain
resulting from a Canadian dollar swap in the three months ended December 31, 2006. Pro
forma income tax expense for the three months ended December 31, 2006, decreased to
$642 million as compared with $669 million for the three months ended September 30,
2006. The effective tax rate for the three months ended December 31, 2006, was 18.6% as
compared with 20.5% for three months ended September 30, 2006. Pro forma minority
interest for the three months ended December 31, 2006, increased marginally to $443
million as compared with $420 million for the three months ended September 30, 2006.
CONCLUSION
Mittal & Arcelor According to what we have managed to learn from the Arcelor-Mittal case, a
hostile takeover goes rarely flawless or without opposition. Since dealing with such a big player
like Arcelor, one might think that the opposition faced by Mittal Steel was inevitable, and surely
enough several governmental organs and actors opposed the bid issued by Mittal. What Arcelor
did to prevent the hostile takeover to a start, was to develop a communications plan, ‘Project
Tiger’, in hope to convince its shareholders not to sell their stocks. Furthermore, they looked for
alternatives, thus engaging negotiations with Russian Severstal in hope to create a mergence
through what in media and press had been referred as a ‘friendly’ merger. The deal never closed
and Arcelor failed to adopt what potentially could have been a “White Knight” defense strategy.
What we would have liked to see from Arcelor’s side in its line of fending off the hostile bid from
Mittal Steel, is perhaps that they would have considered implementing other strategic defense
strategies, such as either Staggered Board or even the Poison Pill defense. These options are
available of course only to Arcelor before receiving a hostile bid. Arcelor could have had issued a
proposal with the consent from their shareholders, to implement certain defense actions that would
have had a pro-active effect when facing a hostile takeover.

Furthermore, we believe it is rather ignorant of Arcelor not to have prepared certain defense
measurements against future potential hostile takeovers, based on the share size and attractive
market position of the company. One would think that such a well-established and big company
such as Arcelor, competing globally, would have had developed defense measurements to fend off
any hostile attempt on the company. One would think that such a well-established and big company
such as Arcelor, competing globally, would have had developed defense measurements to fend off
any hostile attempt on the company. With the implementation of the poison pill defense
measurement, Arcelor could have potentially diluted their stocks, thus forcing the bidder to have
consensus from the board of directors, in order to be able to gain ownership over enough amount
of stocks to control the company. Furthermore, the poison pill defense strategy also works as a
tool for creating more time. More time for the target company to evaluate and analyze the bid and
logic behind it while potentially engaging negotiations with the bidder in hope to increase its bid
offer, thus receiving a higher bid premium which in the end increases the wealth of the
shareholders. 36 A flip-in poison pill enables the target company to issue new shares when facing
a hostile bid. The new shares issued, are available to the target company’s shareholders only and
are usually sold at a price far beneath the market price of the share. This makes it more difficult
for the bidder to gain a majority stake of the shares in the company, thus buying the target firm
some time to reflect over the actual bid as well as potentially increasing the bid premium received
from the bidder.
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