Takeover Defences and Anti-takeover Defence strategy
Take over defence strategy is also known as anti take over tactics. It included all actions taken by the target company to resist the takeover.
The takeover defences are of two types according to severity :
- Mild Resistance
- Severe Resistance
Mild Resistance forces bidders to restructure their offer but doesnot prevent an aquisition.
Sever Resistance can block the takeover bids.
*** MoA is the constitution of the company**
****AoA is the By law of the company****
Types of takeover defence strategies :
PreBid / Preventive Take over Defences strategy
- Shark Repellent: In this case, the company will make a special amendment in its charter or by-laws, that become active only when a takeover attempt is announced or presented to shareholders. It includes some potential riders like Register of members, Control over debts of the company, Cross holdings.
- Golden Parachute: are employee severance arrangements that are prego whenever there is a change in the control of the company. The different golden parachute may be stock options, bonus shares Hefty severance pay
- Whitemail: It is coined as opposite to blackmail. It is an arrangement where the target company will sell significantly discounted shares to a friendly third party.
- Staggered Board: is an arrangement in which a group of directors are elected at different times for multiple years since the acquiring company has to win multiple proxy fights to take over the company.
- Super Majority: Supermajority provision typically increase the shareholder approval requirements for a merger. This requirement is written in the charter or by-law of the company.
- Poison Pills: It is a destructive mechanism that would be triggered at the time of the takeover, under this method the target company gives existing shareholders the rights to buy the stock at a price lower than the prevailing market price during a hostile takeover attempt.
- Crown Jewels: The crown jewels are often the most valuable part of the company in this case the company sell their crown jewels if a hostile takeover attempt is taken.
PostBid takeover defences strategy:
These strategies are made once a hostile take over attempt is launched against the company.
- Pacman Defence: It is based on the video game called “Pacman” here the company being acquired attempts to purchase the could be the buyer. This is called backflip take over strategy. So in this case the venerable company (Pacman) stops its enemy (acquirer) and attacks back with a hostile takeover of its own.
- Greenmail: is a sum of money paid by a company to someone who holds a large share of company stock with the goal of preventing hostile take over. Some business also refers to greenmail as a goodbye kiss payment or Bonvouage bonus. When a company pays green mail it makes an agreement that such type of action shall not be done in future.
- Standstill Agreement: It is an agreement between a target firm and a potential acquirer where the potential acquirer agrees not to increase his/her/it shares in the company for a fee.
- Litigations: Bringing an administrative claim or court proceeding against the rider is regarded as the most common anti take over measures. The court action can lengthen the period of time needed to complete the time.
- Selftender: A corporate buyback of its own shares may act as a takeover defence strategy. By buying back, the voting power of the shareholder becomes friendly to the management increases.
- White Knight is a company that gallops to rescue the company that is facing a hostile takeover from another company (dark knight). By making another offer of purchasing the shares of the victim company.
- People Pill: Here the management threatens that in the event of hostile takeover the management team and core specialist will resign at the same time en masse. This strategy is very much suitable in case of high-tech/services businesses.
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