Corporate Finance (VIII): Mergers and Acquisitions

Introduction A corporate takeover is a transaction that transfers ownership of a firm from one group of investors to another, typically aiming to introduce significant changes in management and operations. The bidder—or raider—seeks control over the target company. Bidders usually exchange cash, equity, or other securities for shares of the target company—or for some portion of its assets. Takeovers can be classified as follows: Tender offers—direct purchases of shares from shareholders—commonly used to overcome managerial opposition. Such offers may be conditional or unconditional, and restricted or unrestricted: • Conditional: The offer is not binding unless a pre-specified minimum number of shares is accepted and tendered (i.e., a threshold volume is met). • Restricted: The bidder is under no obligation to purchase more than a pre-specified number of shares (i.e., the bidder sets an upper limit on the number of shares it will acquire). Note: An “any-or-all” offer is both unconditional and unrestricted. Takeovers have triggered major restructurings across many industries; their social desirability remains a subject of contentious debate. Conceptually and empirically, takeovers are highly intriguing—they constitute a key transaction in the market for corporate control. Stylized Facts (Hirshleifer, 1995) 1. Target shareholders earn positive abnormal returns upon announcement of a takeover, and receive higher premiums in successful takeovers. 2. Bidder shareholders, on average, earn zero abnormal returns at announcement—and thus often incur losses. 3. The combined market value of bidder and target firms rises, on average. 4. There is high uncertainty regarding whether a tender offer will succeed or fail. Success probability is positively correlated with the bid premium and the bidder’s initial stake (“toehold”). 5. If the target firm is ultimately not acquired by any other bidder, the abnormal stock return observed during a failed offer tends to vanish on average. 6. Multiple bidders competing for the same target generate higher abnormal returns for the target’s stock. 7. Markets react negatively, on average, to greenmail (i.e., payments made to potential bidders to induce them to withdraw hostile takeover attempts) and other defensive measures—including anti-takeover charter amendments, poison pills, and defensive restructurings. 8. Bidding typically involves only a few large, discontinuous jumps in offer price. Prior to formal bidding, bidders usually accumulate only a small ownership stake. 9. Higher acquisition premiums are associated with greater insider ownership by target management and with higher target leverage. 10. Takeover activity occurs in waves and varies significantly across industries and countries. 11. Extensive regulation affects takeover transactions—for example, prohibitions on secret share purchases, restrictions on disclosure of bidding strategies, and support for defensive measures. Nonetheless, takeovers remain highly prevalent—especially in the UK and the US. Motivations for Takeovers Technological gains: economies of scale, economies of scope (complementary resources), and vertical integration.

1951–1953: The Iranian Oil Crisis

At the beginning of the twentieth century, Persia remained an ancient, agrarian empire. In May 1901, facing severe fiscal difficulties, Mozaffar ad-Din Shah of the Qajar dynasty signed an agreement with British mining magnate William Knox D’Arcy—the D’Arcy Concession—that would irrevocably alter Iran’s destiny. The terms of this agreement were extraordinarily harsh: D’Arcy secured exclusive rights to explore for, extract, and exploit oil and natural gas throughout all of Persia except its five northern provinces, for a period of 60 years. In return, the Persian government received only £40,000 in cash, £40,000 worth of company stock, and a mere 16% share of future profits. On May 26, 1908, in Masjed Soleiman—a city in southwestern Iran—explorers struck the Middle East’s first commercial oil well. This discovery opened the door to the Middle Eastern oil era. In 1909, the Anglo-Persian Oil Company (APOC) was formally established. The British built a refinery in Abadan, Khuzestan Province—an installation that would later become the world’s largest refinery prior to World War II. In 1913, Winston Churchill, then First Lord of the Admiralty, made a pivotal decision: the British government acquired a 51% controlling stake in APOC, transforming it into a strategic national asset. From then on, Iranian oil became inextricably linked to the mechanization of the British Royal Navy. In 1935, following Persia’s official renaming as Iran, APOC changed its name to the Anglo-Iranian Oil Company (AIOC)—the predecessor of today’s BP. Over the next half-century, AIOC effectively operated as a “state within a state” in Iran. It owned vast tracts of land, managed the country’s largest refinery, and was entirely run by British engineers and administrators. The company employed approximately 60,000 Iranian workers, while tens of thousands more depended indirectly on the oil industry for their livelihoods. Yet profit distribution was grossly inequitable. Although the concession agreement stipulated a 50% profit share for Iran, scholars universally agree that AIOC’s actual payments to Iran fell far short of this figure. By 1923, AIOC’s annual revenue exceeded £40 million, yet the Iranian government received only about £5 million. Through opaque accounting practices—such as artificially depressing crude oil prices while inflating refined product prices—Britain further exploited Iran. As a result, domestic fuel prices in Iran remained exorbitantly high, while the British Navy enjoyed access to cheap fuel. Even more outrageously, AIOC refused to disclose its financial records to the Iranian government and rejected all audit requests. As the sovereign owner of the resource, Iran could not even ascertain the company’s true profitability—instead, it had no choice but to accept, passively, whatever profit figures Britain unilaterally declared. In 1932, Reza Shah Pahlavi—the founder of the Pahlavi dynasty—reached his breaking point over AIOC’s extreme opacity in financial settlements and announced his intention to revoke the company’s concession. At that time, Iran’s receipts from the company had merely doubled since 1917, whereas the company’s production had nearly increased tenfold. Britain referred the dispute to the League of Nations. After intense negotiations, a new agreement was reached in 1933: Iran’s profit share rose to 20%; the concession term was extended to 60 years; settlement procedures were clarified; and Iran secured a guaranteed minimum annual income of £1 million. Yet this remained an unequal agreement—one in which Iran’s natural resources and national sovereignty were controlled by foreigners.

Inpex exercises pre-emptive rights to buy JERA's stake in Ichthys LNG project

20 hours ago

Inpex exercised pre-emptive rights to acquire JERA's 0.735% stake in the Ichthys LNG project, blocking a deal with MidOcean Energy and raising its interest to 68.555%. The transaction supports Inpex's strategy to expand upstream gas assets and enhance regional energy security.

reuters

2026-09-25

Inpex exercises pre-emptive rights to buy JERA's stake in Ichthys LNG project

Inpex exercises pre-emptive rights to buy JERA's stake in Ichthys LNG project

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