Circon Case Essay

1399 Words6 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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How does Circon’s poison pill work? Please show in your calculations how the poison pill makes it more difficult (expensive) for acquirer to buy Circon
A poison pill works by distributing to all shareholders warrants to buy more common stock from the company at substantially less than the market price. These warrants become exercisable only in the event that a shareholder (“the acquiring person”) buys more than a certain percentage of the company. These warrants are explicitly not exercisable by the acquiring person, so the resulting dilution in his voting power and economic stake may make the acquisition of the target through market purchases too expensive to pursue.

In Circon’s case, the poison pill will be triggered at 15% and allowed all shareholders (other than the acquiring shareholder) to pay in $70 cash and receive in return $140 worth of Circon common stock for each share owned (valued before the takeover attempt)
Value for each Circon share before the takeover announcement - $10.56/share
On the day of announcement share price went up to - $12.125/share
No of shares outstanding for Circon – 12.77 M
15% of
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