What are the concerns and what are the bargaining positions of each group of Nicholson stockholders? What must Copper offer each group in order to acquire its shares?
As we already know, companies other than Cooper Industries are interested in acquiring Nicholson File Company. Nicholson’s shares are split amongst its 4,200 stockholders, 20% of which are controlled by the Nicholson family and management (HBS pg 33). With external companies coming forward and trying to acquire the company, Nicholson face several concerns and are subjected to several different bargaining powers. Bargaining powers is the ability of parties, in this case, Nicholson and the companies seeking for control, in a situation to exert influence over each other; in a perfectly competitive market, two companies will share the equal bargaining power.
Nicholson has the disadvantage in bargaining power; the company has relatively poor sales and profit performance in the recent years, conservative accounting and financial policies, and a low percentage of outstanding stock held by the Nicholson family and management. With this disadvantage, buyers are able to come in very easily, as what had happened on March 3, 1972. H.K Porter Company, a conglomerate with wide-ranging interests in electrical equipment, tools, nonferrous metals and rubber products, and owns 44,000 shares in Nicholson, which were acquired in 1967, came to Nicholson with its plan to tender immediately, 437,000 of 582,000 outstanding shares at $42 per share paid in cash This tender offer would end on April 4th(HBS pg 33).
Tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corporation (the target corporation) to tender their stock for sale at a specified price during a specified time, subject to the tendering of a minimum and maximum number of shares (Dictionary.com); also, in a tender offer, the bidder contacts shareholders directly; the directors of the company may or may not have endorsed the tender offer proposal. Nicholson was alarmed by this proposal and its management must act quickly before Porter takes majority control of the company.
One concern from the Nicholson family management is: if Porter were to gain control of Nicholson, the family, only with 20% of outstanding shares, would lose all control. As for the remaining shareholders, the $42, a $12 premium is indeed very attractive, due to the low performance in Nicholson’s recent years; shareholders may take this opportunity to sell shares to make this profit. It is also said that companies with low bargaining power can improve their position and shareholder’s potential gains by adopting antitakeover measures. In this case, Nicholson, in no position to ignore Porter’s tender offer, must take on