Module 25.2 LOS 20.f: Hostile Takeover Defenses

There are pre-offer and post-offer defenses for a hostile takeover. Post-offer defenses are more difficult to execute as there is more legal scrutiny on those.

Some common pre-offer defenses include:

  • Poison pill defense – gives existing shareholders right to buy additional shares at discounted prices, diluting the share pool and increasing the takeover price.
  • Poison put – allows bondholders to demand immediate repayment on debts if a hostile takeover occurs
  • Restrictive takeover laws
  • Staggered board
  • Restricted voting rights
  • Supermajority voting provisions for mergers
  • Fair price amendment
  • Golden parachutes – provisions that usually guarantee large payments if existing management loses their jobs in a takeover

Some common post-offer defenses include:

  • Litigation
  • Greenmail – an agreement when the takeover target agrees to repurchase its shares from the acquirer at an increased price, essentially paying of the acquirer
  • Share repurchases
  • Leveraged recapitalization
  • Crown jewel defense – sell off prized assets to neutral or friendly third party to dissuade acquirer
  • Pac-Man defense – when the target company puts in a bit on the acquirer company, threatening to become the acquirer
  • White knight defense
  • White squire defense

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