Circon Case Essay

1416 Words Feb 16th, 2016 6 Pages
1. Why is Auhll (CEO of Circon) resisting to the takeover? How do incentives of Auhll conflict with those of other (minority) shareholders?
Auhll liked challenges, he had an innovative mind and he liked to do something new and different every time. .Auhll seems to have a soft corner for lost causes, Circon was a lost cause which he had picked up to turn its performance completely.
ACMI as well as Cabot fall into the same category as that of Circon Inc. Having seen success with Circon and ACMI, he had an undoubting confidence that he would turn around the performance of Cabot as he did with Circon and ACMI. His approach and belief, that he cannot be wrong had led him on a different path as that of the shareholders. The takeover bid was
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Thus Circon pays @23.28M for 15% stake
This triggers the poison pill – Now for $70 cash, each shareholder will receive @140 worth of common stock ie. for $70, shareholders can get 13.25 shares (valued at $10.56)
Therefore, for remaining 10.86M shares (85% stake), shareholders can get 143.9 shares (10.86*13.25 new shares)
Now number of outstanding shares becomes – 143.9+1.92= 145.82M shares
Thus with 1.92M shares, USS now has 1.92\145.82 = 1.32% stake. As we can see the ownership of USS has diluted because of the triggering of poison pill.
Before Poison Pill: Group | # of Shares | % Total | Value | Hostile bidder | 1.92 M | 15% | $ 23.28 M | Common Shareholders | 10.86 M | 85% | $ 131.6 M | Total | 12.77 M | 100% | $ 154.8 M | Per Share | | | $12.125 |

After Poison Pill:
Friendly shareholders pay ($70)*(10.86M) = $760.2M (Assuming all 10.86M common shareholders take up the offer) in exchange of 143.9M (=$10.86M*13.25) new shares. Group | # of Shares | % Total | Value | Hostile bidder | 1.92 M | 1.32 % | $ 12 M | Common Shareholders | 10.86 M * 13.25 = 143.9 M | 98.68 % | $ 902 M | Total | 145.82 M | 100% | $ 915.0 M | Per Share | | | $ 6.27 |

Now in this scenario, to obtain 15% stake, now USS will need to pay $137M [=145.82M*0.15)*$ 6.27]
Also, USS offered to buy 100% shares at @18 per share (initial offer valued at @230M). However, now the value of offer @18 per share becomes – 145.82M *18 =

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