C.K. Kok explains the meaning of some terms in corporate-speak and legalese
To the ordinary man, the expressions "Black Swan", "bimbo", "Russian Roulette" and "tailgating" have specific meanings. Yet, each of these, and other terms, have acquired a different meaning in the legal and financial services industry. Here are some interesting expressions in corporate-speak and legalese.
According to the Shorter Oxford English Dictionary (5th Edition), a "bimbo" is an attractive but unintelligent woman.
In the world of finance, the acronym "BIMBO" stands for "Buy In Management Buy Out" where existing shareholders of a company are bought-out by a consortium comprising outside investors who "buy in" and existing management who undertake a "management buy out".
To this day, the finance wizards at Harvard, Wharton and INSEAD and top-notch investment bankers on Wall Street have yet to find an appropriate use for the expression, "bimbo", which according to the above-referred dictionary, describes an attractive but unintelligent man. Perhaps the jocks of the NFL and the EPL can provide an 'assist' here, duh?
Black Swan is the name of the movie in which Natalie Portman won the Academy Award for Best Actress in 2010 for her brilliant portrayal of the psychological meltdown of a prima ballerina (the principal ballerina in a ballet company).
In corporate-speak, a "Black Swan" describes a rare event of extreme impact which lies outside the realm of predictability. The appearance of a "Black Swan" usually wreaks havoc in the financial markets. The term was coined by Professor Nassim Nicholas Taleb, a professor at Oxford University and the Polytechnic Institute of New York University, in his book "The Black Swan".
BLITZKRIEG TENDER OFFER
In military parlance, "blitzkrieg" means "lightning war" in German. This strategy was deployed with great success at the outbreak of World War II when Germany, relying on heavy bombardment by its aeroplanes, artillery and tanks, conquered most of Western Europe with ease and in quick time.
A "blitzkrieg tender offer" is similar to the military strategy insofar as its objective is to secure success quickly. It differs radically from its military counterpart in that unlike the latter which creates "shock and awe", a "blitzkrieg tender offer" is a take-over offer which is so attractive that it receives minimal or no objections from the shareholders of the target company.
The reclusive Malaysian billionaire, T. Ananda Krishnan, has deployed this tactic with great success in his privatisation of Maxis Communications Berhad, ASTRO All Asia Networks plc and Tanjung plc by offering substantial premiums of 20%, 23.6% and 21.9% respectively over the last-traded price of the shares of those companies before the issue of the respective take-over notices. Each offer attracted more than 90% acceptances, thereby enabling the offeror to acquire the remaining shares of each company using the compulsory acquisition provisions under the relevant securities law.
In the world of mergers and acquisitions, a "break-up fee" is a fee which a purchaser pays to a target company or the seller if the purchaser withdraws from the transaction. Although less common in practice, this term can also apply to a fee that is payable by a seller or the target company to a purchaser if seller or the target company withdraws from the sale. Such payment is to compensate the relevant party for time and resources spent on the transaction and for loss of opportunity.
The payment of break-up fees is a common practice in international transactions. On 21 March 2011, Bloomberg reported that AT&T agreed to pay T-Mobile USA a break-up fee of US$3 billion if it does not proceed with the acquisition of the latter. It was also reported in
that AOL and Pfizer had each agreed to pay break-up fees in excess of US$4 billion in their purchase of Time-Warner and Wyeth. The AOL-Time-Warner and the Pfizer-Wyeth transactions, valued at US$160 billion and US$68 billion, were completed in 1980 and 2009 respectively.
Although break-up fees are presently not a common practice in the Malaysian merger and acquisition scene, the practice may find its way to our shores in due time.
On 6 March 2011, asiaone.com.sg reported that Ms Tan, a waitress, demanded S$30,000 from her former boyfriend, Mr Du, as a break-up fee when he ended their 6-year relationship. Ms Tan alleged that Mr Du had signed an agreement with her and a certain Mr Ng, her other boyfriend (yes, life gets complicated in a triangular relationship) to pay her that sum and a further sum of S$15,000 to Mr Ng.
The online news portal further reported that Ms Ng has since obtained legal advice that the agreement was not legally binding. A case of life imitating art?
The expression "dawn raid" derives its origin from the military strategy, "pre-dawn raid", where attacks are launched before daybreak when the enemy's level of battle-readiness is lower.
In a hostile take-over, a dawn raid occurs when a corporate raider acquires large blocks of securities in the target company as soon as trading commences on the stock market.
One of the most famous "dawn raids" occurred on 8 September 1981 when Permodalan Nasional Berhad (PNB), then led by Tan Sri Khalid Ibrahim (now Mentri Besar of Selangor) acquired approximately 26% of the ordinary share capital of The Guthrie Corporation Limited on the London Stock Exchange within 2 hours of trading to increase its holding in that company to 51%. PNB eventually acquired the remaining shares in Guthrie.
In the trading of securities, an "ex-date" refers to a date on and after which a security is traded without the entitlement to a right, distribution or dividend which has been announced. On Bursa Malaysia, the ex-date usually falls 3 market days before the entitlement date.
In the larger scheme of life, the prefix "ex" connotes a relationship which once existed, but no longer. For example, an ex-spouse refers to a person's former husband or wife, and an ex-girlfriend is a person's former girlfriend. By extending the same logic, an "ex-date" would be someone whom a person once dated but no longer does.
In horse-racing, "front running" describes a horse whose style is to race from the front of the pack as soon as the race starts.
In corporate parlance, front running is the practice where a market intermediary, such as a broker, acquires a particular security before his company recommends the same security to its clients.
On 1 April 2011, The Australian reported that Oswyn de Silva, a Malaysian fund manager with Macquarie Bank in Sydney, was sentenced to 2½ years imprisonment for this form of insider trading. De Silva had purchased certain stocks using insider knowledge that a Macquarie Group company would be purchasing these stocks to align its investments with its investment model and subsequently sold them to the Macquarie Group company for a profit.
A "go-shop period" is not a time when one allows his wife to go on an unbridled shopping spree during the Grand Prix Sale, Mid-Year Sale, Year-End Sale, Hari Raya Sale, Chinese New Year Sale, Deepavali Sale, Christmas Sale or a host of other sales that seem to be perpetually on-going in Malaysia.
In mergers and acquisitions, a "go-shop period" is a time period during which a company that is being sold is permitted to seek out competing offers even though it has agreed on the principal terms of the sale with a prospective buyer. This period enables the directors of the target company to fulfil their fiduciary duty to obtain the best possible price for the sale.
In November 2010, Del Monte Foods Company entered into a merger agreement with a group of investors led by Kohlberg Kravis and Roberts & Co, L.P. which gave Del Monte the right to solicit alternative bids from third parties for a period of 45 days. The "go-shop period" ended on 8 January 2011 without the company finding any alternative bidders. The merger was completed on 8 March 2011.
The deadly game of Russian Roulette probably came to attention of the public in the 1978 multiple Academy Award (including Best Picture) winning movie "Deer Hunter" where the American POWs were forced by their Vietcong captors to play a deadly game where they took turns to spin the cylindrical ammunition chamber of a revolver which contained one bullet before placing the gun against their temples and pulling the trigger. Extreme sports at its ultimate!
In legal terms, a "Russian Roulette" is a form of dead-lock breaking mechanism in a shareholders' agreement whereby a party, A, offers to purchase all the shares of the other party, B, and alternatively, at the election of B, to sell all of A's shares to B, in each case, at the price set by A. B must elect, within a specified time period, to buy A's shares or sell its shares to A. If B fails to respond by the expiry of the specified period, B is deemed to have agreed to sell its shares to A.
The expression "sidecar" refers to a motorcycle sidecar. The pillion in the sidecar entrusts his safety to the skills of the rider of the motorcycle.
A sidecar investment strategy is one where an investor allows another investor to control the manner in which the former's funds are to be invested. In other words, the first investor relies on the investment expertise of the other.
On 25 March 2011, StarBiz reported that a number of French investors in LuxAlpha Sicav-American Selection Fund sued Swiss bank, UBS, in Paris for failing to disclose in the prospectus that the fund's assets were to be invested through Bernard Maddoff's firm.
While it remains to be seen whether the suit will be successful, it appears that UBS had adopted a sidecar investment strategy by entrusting Lux-Alpha Fund's assets in the care of the now disgraced former NASDAQ Chairman and Ponzi-scheme operator extraordinaire.
In everyday life, tailgating is an incident that you encounter when a Proton Satria or Perodua Kancil with its HID-lights blazing on high-beam races right up to the rear bumper of your BMW as you cruise along on the PLUS Highway at a leisurely speed of 180 kmh.
In corporate-speak, tailgating is the practice where a market intermediary buys or sells a security for its own account immediately after carrying out the same transaction on behalf of its client. Unlike front running, tailgating may not be illegal unless the intermediary is in possession of insider information or is a tippee (one who knowingly receive a tip from an insider) when he executes the trade for his own account.
A "Texas Shoot-Out" is not a B-Grade direct-to-video remake of the "Gunfight at the O.K. Corral". It is another form of dead-lock breaking mechanism in a shareholders' agreement.
In a "Texas Shoot-Out", a party, A, offers to purchase all the shares of the other party, B, at a price set by A. B must, within a specified period, indicate whether he will accepts A's offer or that he will purchase all of A's shares at a higher price. If B indicates that he wishes to purchase A's shares, a sealed bidding process will ensue and the shares will be sold to the party who sets the highest price.
Dead-lock resolution clauses like a "Texas Shoot-Out" and "Russian Roulette" are usually provisions of last resort when the parties wish to end their relationship as shareholders in a joint-venture company.