Joe Flom, a lawyer from Brooklyn, was the “man most responsible for the hostile takeover movement” (Madrick 74) that began in the 1970s. By 1970, he had already been involved in the business of hostile takeovers for small businesses for the past twenty years. Flom created a model for hostile takeovers that has been seen time and time again since the 1970s. He was always characterized as a great role-model for other lawyers in America, and especially those in his law firm Skadden, Arps, Slate, Meagher, and Flom. Hostile takeovers are acquisitions that the target company resists. A company may be a target for various reasons, with the most common reason being that the company’s stock price is very low and easy for a larger company to come and buy. The problem with the hostile takeover model that Joe Flom created in the 1970s is that it has changed the way companies are managed. Instead of looking out for the long term, companies nowadays look out for the short term, in order to keep their stock price high and reduce the chance of being taken over. This type of management results in companies cutting wages, workers, and other costs that may reduce the effectiveness of their company. A company that runs its business for the long-term and allows its stock to become low for the short term becomes a major target. One of the more recent targets was Foster’s Group, the largest brewing company in Australia. SABmiller, a conglomerate brewing industry that owns various companies, such as Molson and Coors made an attempt to buy Foster’s. Foster’s declined and thus began a hostile takeover with the law firm Hogan and Lovells behind SABmiller. The Hogan portion of this law firm (formerly part of Hogan and Hartson) dates back all the way to 1970s in Washington, D.C. They were around during the time of the hostile takeover movement and inevitably saw Joe Flom as a leading example for all lawyers. At first, the law firm Hogan and Hartson was not involved in the hostile takeover movement, but they too got sucked into the Age of Greed. It is the U.S. government’s job to try and stop practices that reduce competition in order to maintain a free market. Currently, the government is not doing this and to this day, they have not amended the Williams bill of 1968 which limited and legitimized hostile takeovers. In order to reduce the harm of hostile takeovers and Joe Flom’s influence, the U.S. government must take a look at the out-dated laws regarding hostile takeovers and potentially adopt policies from other countries, such as England.
As mentioned before, hostile takeovers are acquisitions that the target company resists. A company is especially vulnerable when its stock prices are low. The company becomes attractive to large conglomerates because they know if they can buy up the target company, they will have more assets and more customers as well. After denying the (in many cases) larger company’s initial offer, the target companies usually do anything they can to increase their stock price and, in turn, the value of their shares. This is often times done by “cutting wages and jobs just as if they had been taken over.” (Madrick 81). Another way that target companies combat the potential acquirers is that they hire another company to counter-bid for their shares after the acquirer has made an initial offer. The target company hopes that the friendlier counter-bidder can out-bid for shares and gain a large amount of them (Madrick 79-80). Having the shares is important to acquirers because the more shares you have, the more likely it is that you can win the vote that takes place concerning the merge or acquisition. Madrick says that 25% of the shares is an adequate amount to have in order to have the power to sway the vote in their direction. When a company owns 50% plus one share of the company’s total shares, they ultimately own the target company because no matter what the rest of the shareholders vote, the shareholder with 50% plus one will always win. Jeffrey Madrick believes that “corporations would not have been nearly as aggressive about acquiring other companies had Wall Street and the legal community led by Joe Flom not provoked them.” (Madrick 85). In the 1970s, Joe Flom was involved in the first ever hostile takeover done by a first-tier company, which was a huge accomplishment that would intensify the amount and the scope of hostile takeovers. Hostile takeovers, mergers, and acquisitions are a common thing of American life and also of global life, when before, it was considered a disreputable business.
The United States of America is probably the single most influential country in the entire world and one of the most innovative as well. Many countries around the world derive policies and various ideas from Americans. Joe Flom was probably no exception. Joe Flom’s cutthroat and competitive hostile takeovers inspired many other lawyers in America to follow suit and reap the benefits. Soon after, other countries would hop on board too. On top of that, “U.S. lawyers are characterized as "egging on" their European clients in their foreign hostile takeover activities” (Silver). Hogan and Lovells, the firm behind SABmiller in its hostile takeover of Foster’s, is a company based in London, England. Fred Rich, a partner in the American based law firm Sullivan and Cromwell, characterizes American lawyers as pragmatic and highly commercial. He compliments them on their ability to get behind the client and be as competitive as possible. He also says that his style of hostile takeovers is seen around the world, but has its roots in America. Fred Rich stated, “Of course the best English lawyers do the same thing, but that particular style is something that was invented here.” (Silver). Joe Flom was an amazing and influential lawyer in the world of mergers and acquisitions. To illustrate Joe Flom’s extensive participation, Madrick writes that Joe Flom once recalled that in one year he was involved in 17 out of the 18 hostile takeovers of that entire year (Madrick 84). The Hogan portion of Hogan and Lovells was founded in 1904 and was named Hogan and Hartson in the 1970s. At first, Hogan and Hartson tried to resist the lucrative practice of hostile takeovers. In fact, “the perception inside the legal world was that Hogan was soft.” (Eisler). Hogan and Hartson noticed that companies like Arnold & Porter and Skadden, Arps, Slate, Meagher & Flom were much more profitable due to their involvement in mergers and acquisitions. The firm did not mind because although “Hogan wasn't as profitable as some firms, its earnings were steady.” (Eisler). Up until the 1990s, Hogan and Hartson withstood the urge to get involved in hostile takeovers because to them, it was not just about money, it was about being a cohesive group of good lawyers who did not overwork themselves (Eisler). In one of Hogan and Hartson’s first mergers and acquisitions, “The firm represented Jacor Communications in its $4.4 billion acquisition by Clear Channel Communications in 1998.” (“Hogan and Hartson”). Just one year later, they also counseled Mobil in its merger with Exxon (“Hogan and Hartson”). By that point, they had tasted the lucrative business of hostile takeovers and would continue to be involved in them even still today, under a new law firm after merging with another law firm, Lovells.
Joe Flom, as mentioned before, was an extremely influential man on Wall Street during the 1970s and up until today, and had a tremendous effect on lawyers in America. Upon his death in February 2011, many people characterized Joe Flom as a role model for other lawyers (Glater). The fact that both Joe Flom’s firm and Hogan and Harston’s were founded around the same time, it is almost certain that Joe Flom influenced Hogan and Harston’s future path in the legal world. Hogan and Hartson’s main focus in the 1970s was pro-bono work which meant providing lawyers for free. But, “As the activities of the federal government expanded, the number and scope of Hogan & Hartson's practice areas also grew. While litigation (both trial and appellate), taxation, health, and communications remained major focuses of the firm's practice, many other areas were also added over the years, including all significant aspects of corporate, regulatory, intellectual property, and legislative” (“History”). Corporate practices were probably added over the years to include mergers and acquisitions because they had begun to see how profitable it was, and that they could not survive in the world of law without getting involved. One of the growing federal activities could have been the passage of a bill which attempted to better regulate hostile takeovers. In 1968, Congress passed a bill, called the Williams bill, which required anyone who bought a share that equaled 10% or more of a company had to disclose that information publicly with the Securities and Exchange Commission (SEC) (Madrick 76). Flom noticed that the Williams bill, “prescribed not only what you could not do but also indirectly what you could do.” (Madrick 77). Enter the beginning of the end. Wall Street soon after became more involved in and more accepting of hostile takeovers. Flom created the hostile takeover movement, the Williams bill legitimized it, and everybody followed it. Hogan and Hartson could no longer compete with the top law firms such as Skadden, Arps, Meagher, Slate, and Flom and Arnold and Porter, who had “gotten the jump on Hogan and Hartson” in the “mergers-and-acquisitions arena” (Eisler), unless they too got involved in the business of mergers and acquisitions.
SABmiller began their hostile takeover in June 2011 with a bid of $10 billion for the entire Foster’s Group company. Foster’s denied this because they felt that their company was being undervalued, as targets often feel following the first bid. After being denied by Foster group’s primary owners, SAB miller decided to go straight to the shareholders, the typical hostile takeover move developed and exacerbated by Joe Flom. On September 2, 2011, Foster’s share price was $4.86 in Australian dollars and SABmiller had offered them $4.90. (Werdigier). This bidding went on until SABMiller had enough shares to win the vote on the merge which took place December 1, 2011 (“Foster’s gets”). The merge was then approved December 2, 2011 by the Supreme Court of Victoria in England. In the 2010-11 fiscal year, Foster’s “had a loss of 89 million dollars after the company incurred losses on the recent spinoff of its wine business, Treasury Wine Estates.” (Reuters). They also had reduced profit margins because of a decrease in consumer spending, lower overall beer consumption, and a wet summer that affected production and demand. Because of these factors, their “low stock prices made it attractive [for SABmiller] to pay for the [company] with cash” (Madrick 72). Foster’s Group proclaimed that they were a long-term business and that they were working on a three-year plan to increase their stock price. Chief Executive Officer of Foster’s Group, Mr. Pollaers, said that, “The turnaround of this company is clearly on track. Market share has stabilized, correcting a long-term period of decline,” and “The key point is that we’re getting on with business as usual. We are running Foster’s for the long term.” (Reuters). Foster’s biggest problem was that they were looking at their long-term success, not the short-term and their current stock prices. This might puzzle some people, because is it not the right thing to manage your company for long-term survival and success? In today’s climate, it is not, since conglomerates are always looking for smaller and struggling companies that can be easily gobbled up. The fact that many businesses today do not want to become potential targets many times leads them to worry about short-term profits and short-term success instead of the long-term in order to keep their stock price high. This is an example of how Joe Flom “transformed the way American companies were managed.” (Madrick 73). He encouraged these kinds of behaviors around the exact same time Hogans and Hartson’s law firm was starting up in Washington. The expertise in how to find the right target company and how to take them down has been passed from Joe Flom, to American lawyers, and now is spread all around the world. Two men, Carl Rauh and Robert Bennett left Skadden, Arps, Meagher, and Flom, for Hogan and Hartson (Hill and Mystal). It is possible that these two men, especially Rauh, specializing in mergers and acquisitions, brought with them the knowledge and training derived from working under, and in at least Bennett’s case, together with Joe Flom (“Joe Flom”).
Although the hostile takeover of Foster’s by SABmiller did not include the United States, “In 2007, SABMiller merged its U.S operations with the combined U.S. and Canadian brewer to gain a competitive footing against Anheuser-Busch, the largest U.S. brewery by market share (Gara)." This is exactly the problem with mergers and acquisitions; it reduces the role of competition in the market place, and it also ruins the old model of creating a solid business. Instead of going out and finding new customers by creating popular products, large companies, with little hard-work involved, just buy up other companies in order to become larger and wealthier. The United States government should consider forming more regulations around mergers, acquisitions in order to reduce the harm on American companies, like Anheuser-Busch. England recently has discussed and accomplished the implementation of amendments to their hostile takeover code, and therefore only 1% of their mergers and acquisitions become hostile takeovers. Instead of becoming less common, hostile takeovers in America have become more common and are now seen as “normal.” In an article called “Hostile takeovers hit record as market swoons,” the author, Jessica Hall, wrote, “Unfriendly deals, including unsolicited and hostile deals, accounted for 22.1 percent of all U.S. mergers so far this year [2008], compared with 12.1 percent for all of 2007, according to FactSet MergerMetrics” (Hall). The United States is in an Age of Greed that is virtually unstoppable, but there must be a way to reduce the amount of hostile takeovers in the United States. The reason why America has such a large amount of hostile takeovers is a result of poor policy making. Law student Steven M. Davidoff writes that, in America, there is “an outdated federal takeover code” (Davidoff). His law review also talks about the problems within the Williams Bill mentioned earlier. It is out-dated for many reasons, one being that the offer period is still 20 days, which makes it easy for hostile bidders to take over the company quickly. With new technology and the effectiveness of the internet, companies can be taken over more frequently and effectively. One loop-hole that is repeatedly exploited by acquirers is that the rules of the Williams Bill do not apply to a bid that involves trading stocks for other stocks, instead of cash. The companies who do hostile takeovers many times have stock options of their own that they can trade with the shareholders of other companies. It seems that the United States has fully accepted and embraced hostile takeovers and does not feel the need to do anything to try and subdue them, even though it creates conglomerate oligopolies that reduce competition (Davidoff). England, on the other hand, in 2010 fought the advantages of hostile bidders and tried to help stop the short-term management of English companies with amendments to their version of the Williams Bill. In the Article titled “U.K. Toughens Hostile Takeover Rules” the author, Sarah Hess, discusses the same problems mentioned in Steven M. Davidoff’s review of hostile takeovers and the Williams Bill. Sarah writes, “The United Kingdom’s Panel on Takeovers and Mergers has recently proposed amendments to its Takeover Code that would change the rules regarding hostile offers in order to correct what it called a ‘tactical advantage’ for bidders.” (Hess). One of their arguments was about limiting the time of the announcement of a potential takeover and the vote on whether the company should be acquired. The current allotted time gives too much of an advantage to the hostile bidders because they have adequate time to buy-up shares of the target company. England’s new view is that companies should make an offer, and if it is rejected, they should “shut up” and move on. The second goal of the U.K.’s panel was to encourage “competing offers by prohibiting deal protection measures and inducement fees” (Hess), meaning they wanted to reduce the incentives for shareholders to sell. The last thing the panel wanted to accomplish was to force hostile bidders to disclose their financial information and also what they plan to do with the target company. England is still struggling over what to do about the issue of hostile takeovers, but at least they are trying to do something to stop it (“Proposed Changes”). Regardless, England’s efforts are clearly making a difference, as the United States has an astonishing 20% leap on England in the amount of hostile takeovers.
Joe Flom, along with every man in the book Age of Greed by Jeffrey Madrick, has contributed heavily to the greediness of people in the United States and around the world. SABMiller’s hostile takeover of Foster’s Group is just one of the many that occur every single year in the United States and abroad. SABMiller followed Joe Flom’s effective model of hostile takeovers and succeeded in maintaining enough shares to take over the company in December 2011. Hostile takeovers reduce competition and lead to businesses being managed for the short-term, opposed to the long-term. As a result, smaller companies are constantly worried about their stock price and potential takeover bids because they know that conglomerates are on the prowl for good deals and an easy way of gaining more business and wealth. Hostile takeovers ruin the original model for building and retaining a successful business, which should alarm the American citizens and government, but it seems not to. Today it is not just the age of greed in America that is a problem; it is the age of greed that can be found in almost every developed country around the world. The U.S. tries, and in many times succeeds, in dictating to the world what is right what is wrong, what is “in” and what is “out.” In the 1970s all the way to today, greed has been “in” and so have mergers, acquisitions, hostile takeovers, and oligopolies of a “free” market.
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