Part 1: The Anatomy of the "Generous" Offer
The strategy begins with a shareholder-friendly action: a massive, one-time special dividend. This isn't a typical payout; it's a windfall funded by debt, designed to be too good to ignore while fundamentally altering the company's value.
Dividend's Impact on Share Value
A special dividend of this magnitude represents a huge portion of the stock's pre-transaction price. This payment mechanically reduces the company's value, creating a lower-priced "stub" share.
The Financial Transformation
To fund this generous dividend, the company undertakes a leveraged recapitalization, swapping shareholder equity for a mountain of new debt. This dramatically increases financial risk.
Part 2: The Shareholder's Dilemma
After the dividend is paid, the acquirer makes an offer for the remaining "stub" shares. This creates a powerful structural dilemma designed to compel shareholders to sell, regardless of the offer's intrinsic merit.
Path A: Accept the Full Buyout
Receive the large dividend and then sell the remaining "stub" share to the acquirer. This path offers a clean exit at an attractive total price.
- ✔ Receive Large Cash Dividend
- ✔ Sell "Stub" Share for Cash
- ✔ Realize Full, Premium Value
- ✔ Eliminate Future Risk
Path B: Reject and Hold
Receive the dividend but hold the "stub" share in a company that is now private, highly leveraged, and financially crippled. The future is bleak.
- ✔ Receive Large Cash Dividend
- ✖ Stranded with a Low-Value, Illiquid Share
- ✖ Future Cash Flow Dedicated to Debt
- ✖ No Future Dividends or Growth
Visualizing the Coercion
The total value for shareholders who accept the full buyout is significantly higher than for those left holding the financially impaired "stub" share. This value gap is the core of the structural coercion.
Part 3: The Strategic Playbook
This transaction is a carefully choreographed sequence of events, blending financial engineering with legal maneuvering to achieve the acquirer's goal of taking the company private.
1. Secure Control & Financing
Acquirer gains board influence and lines up billions in debt financing required for the dividend and buyout.
2. Board Approves & Declares Dividend
The board, ideally guided by an independent committee, approves the leveraged recapitalization and declares the massive special dividend.
3. Dividend Paid & Stock Price Drops
Cash is paid to all shareholders. The stock price mechanically falls by the dividend amount, creating the "stub" share.
4. Tender Offer for "Stub" Shares
The acquirer launches a public offer to buy all remaining "stub" shares at a set price, timed to close after the dividend payment.
5. Acquisition Complete
Coerced shareholders tender their shares, the acquirer gains full control, and the company is taken private.
Part 4: The Legal Gauntlet & Key Risks
Executing this strategy means navigating a treacherous legal landscape and accepting significant financial and reputational risk. The entire transaction will be scrutinized by courts under the most exacting standards.
Legal Risk
Near-certainty of shareholder lawsuits alleging breach of fiduciary duty and inequitable coercion. The board must prove the transaction was "Entirely Fair" in both price and process.
Financial Risk
The high leverage makes the company extremely vulnerable to economic downturns or failure to meet performance targets, which could lead to default and bankruptcy.
Reputational Risk
Acquirers and boards employing such aggressive tactics risk being labeled as predatory, damaging their standing in the capital markets and with business partners.