A LEADING research firm has urged companies listed on the Zimbabwe Stock Exchange (ZSE) to consider share buybacks to protect themselves from possible hostile take-overs.
A hostile take-over usually occurs when a company — or a person — attempts to take over a company against the wishes of the target company’s shareholders. Hostile bidders or corporate raiders often typically have at least one unfair advantage — timing.
They tend to approach their prey opportunistically, when a target’s share price is depressed, or a company is facing a crisis.
In its latest economics and market intelligence report, Morgan & Co said an analysis of the ZSE All Share Index revealed that it had de-rated from a peak of 29,441 to 15,023.66 points currently.
This represents a year-to-date movement of just 38,82% compared to an estimated movement on the parallel market rate of 356% since the beginning of the year.
“Share price weakness can increase the risk of hostile takeovers given that sharks are always looking to buy into dips and can potentially raid a company,” the report states.
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“Some companies on the ZSE are now in the negative in terms of Zimbabwe dollar-based year-to-date movements. There is a need for listed companies to retain a sophisticated stock watch firm to monitor trading in the company’s stock so as to receive advance notice in the event a hostile bidder builds a toe-hold stake.”
This, in turn, enables the board to take defensive measures in a timely manner.
It said parties that initiated a hostile takeover bid tended to approach existing shareholders directly as opposed to seeking approval from officers or directors.
“When an acquirer goes after the shareholders of a target company, it is called a tender offer. The acquirer offers to pay shareholders for their stocks in the target company at a premium price, trying to acquire the majority position,” it said.