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Chapter 11CHAPTER ONE–INTRODUCTION TO BUSINESS COMBINATIONSI.BUSINESS COMBINATIONSAbusiness combinationoccurs when the operations of two or more companiesare brought under common control.While merger activity (business combinations) experienced a slowdown in theeconomic decline of 2002 through mid-2003,byJuly of 2003,evidence ofrenewed interestwas obvious.This trend continued, and global merger activitypassed the one trillion dollar mark for the first quarter of 2007, the greatestactivity on record according to CNN.II.NATURE OF THE COMBINATIONA.Nature of the combination1.In afriendly combination, the boards of directors of the potentialcombining companies negotiate mutually agreeable terms of aproposed combination. The proposal is then submitted to thestockholders of the involved companies for approval.2.Anunfriendly (hostile) combinationresults when the board ofdirectors of a company targeted for acquisition resists thecombination. A formaltenderofferenables the acquiring firm todeal directly with individual shareholders.B.Defense tacticsResistance often involves various moves by the target company. Whetheror not such defenses are ultimately beneficial to shareholders remains acontroversial issue.1.Poison pill:Issuing stock rights to existing shareholdersenabling them to purchase additional shares at a price belowmarket value, but exercisable only in the event of a potentialtakeover.Example:Cisco creates "poison pill" to block takeoversby James Niccolaihttp://www.computerworld.com/home/news.nsf/all/9806125poisonCisco Systems, Inc. said yesterday that its board of directors has approved ashareholder rights plan designed to protect the networking company's investorsin the event of a hostile takeover bid.Known in the business world as a "poison pill," the plan is a strategic maneuverto make the company's stock less attractive to potential bidders and to encouragebidders to solicit offerings through the company's board of directors, the SanJose, Calif., company said. A company spokeswoman said Cisco isn't currently

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