CREDIT RISK
The credit risk of the company will be evaluated under the concept of current ratio and quick ratio; if the company has the means to paying-off its liability. If the company has the means it reflects that the company has low credit risk but if the company does not have the sufficient assets to pay off its liability then it has a high credit risk.
The current ratio shows very strong results for the company with the ratio not falling below 2 throughout the 10 years of operations, which is a very remarkable result with the average current ratio being 4.43 meaning the company of average held 4 times the assets compared to the liability.
The quick ratio suggest that the inventory of the company does not hold a big part of the current assets meaning the company has sufficient other assets to pay off the current liability meaning the company has very low credit risk, with the average quick ratio being 2.7 meaning the company holds 2.7 times the current assets other than inventory over the current liability.
The debt to equity ratio shows a different picture of the company, the company holding highest debt to equity ratio of 84% and lowest of 47% meaning the company likes taking risk and explore other options leading to high gearing and risk but the average debt to equity holds firm at 47%, which is an acceptable level for Circon and will lead to no concerns.
TAKEOVER DEFENCES
The immediate action that Auhll took to stall the takeover was implementing the poison pill strategy and implementation of the Employee retention policy “Silver Parachute”.
POISON PILL
The poison pill is a conservative approach to prevent other companies to take over the company; it is used by the board of director as a last resort approach. Under this provision, the right of the shareholder is taken away from the shareholders to negotiate the price for the takeover then under this provision the right falls to the executives and then the board oversees the negotiations. The management and executive then try to make the company less attractive to the acquirer, there are two methods through which this could be achieved.
Flip-In, under this strategy the management allows the existing shareholders to buy more shares on a discounted price; this is offered only to existing holders and not to the acquirer.
Flip-over, this strategy sets up the condition for the acquirer to offer shares at a discounted price once the acquisition has been completed.
By allowing the shareholders to purchase more shares at a discounted price will provide instant profits for the shareholders and percentage holding held by the acquirer is diluted, which makes the acquisition more difficult and expensive for the acquirer.
SILVER PARACHUTE
Silver or Golden parachute are high payoff packages provided to the employees if the company goes through an acquisition in order to increase the fixed cost and making the employees secure. This will reduce the attractiveness for acquisition for the acquirer company.
The silver parachute includes high pays, incentives, bonuses and even stock options are provided, this is generally offered to a great number of employees to make the cost as high as possible and cover as many employees as possible.
The defenses were implemented with the intention to make this acquisition difficult in order to extract the maximum possible bid price for the acquirer but this strategy seemed to back fire at Auhll as Hirsh as reduced the bid offer and continued to do so and a point was reached that company was losing employees damaging the performance as the company could not control the situation with the acquisition threats hovering over the company’s head, at the end it almost felt like Auhll had no intention to sell the company at all and is misleading the shareholders.
MR. AUHLL
Mr. Auhll is a hardworking individual who has a firm belief that value creation is more important than short term shareholder benefits, and this philosophy is clearly seen in all the operations he has been conducting within the company focusing on long-term goals rather than short term benefits, acquiring companies who had defaulted, had no value, bought them and.................................
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