Oracle Corp. spent tens of millions of dollars fighting an 18-month long battle to take over rival software provider PeopleSoft Inc. last year. Similarly, Hewlett-Packard Co.'s board and former chief executive Carly Fiorina spent eight months embroiled in an internecine fight against H-P's founding families, who were trying to block a proposed merger with Compaq Computer Corp. Fiorina ultimately prevailed, and the merger was approved, but at a high cost to both companies.
"It's always seen as the last option, because it creates uncertainty" for everyone involved, including employees and customers, said Muir Paterson, co-director of mergers and acquisitions research at Institutional Shareholder Services in Rockville, an independent adviser for shareholders.
Richard C. Notebaert is chairman of Qwest Communications International, which is continuing its attempt to acquire MCI Inc. despite two rejected bids.
(David Zalubowski -- AP)
First, the company must try to derail MCI's deal with Verizon.
To do that, Qwest must persuade a majority of MCI shareholders to vote against the Verizon deal in a shareholder vote this summer. Although many MCI shareholders balked at the first Verizon deal, at least some shareholders have said they support the new deal with Verizon.
Another option for Qwest is to bypass MCI's board of directors entirely by taking its offer directly to MCI shareholders in what is called a hostile takeover bid. If enough MCI shareholders tendered their shares to Qwest, Qwest would be in a position to control MCI. Qwest could then pressure MCI to reconsider its offer.
That's not an easy task.
For one thing, a provision in MCI's bylaws called a poison pill is triggered when a hostile buyer acquires more than 15 percent of MCI's stock. That allows the company to issue additional shares at a low price, diluting the company's stock and making it prohibitively expensive for Qwest to buy the company. That provision can be removed only by the MCI board.
Qwest could also challenge MCI's merger agreement with Verizon in court, claiming MCI's board failed to properly consider Qwest's offer. But experts said that strategy doesn't stand much of a chance because MCI has been operating under the supervision of a court-appointed ethics monitor after a massive accounting scandal at WorldCom Inc., its predecessor company.
"It would be almost impossible for a court to find a flaw in the process," Minow said. The monitor has made sure MCI has followed every governance rule, she said. "They have dotted every 'i' and crossed every 't.' "
Last year, only six of 27 proxy fights launched against a board decision were successful, according to a report by Georgeson Shareholder Communications Inc., a proxy solicitation firm that works with Verizon.
"It always puzzles me why someone would work so hard to get something the other side doesn't want," said Minow, "because at the end of the day, [if they succeed] they'll have to work together."
Staff writer David A. Vise contributed to this report.