Get Paper for Free. We can, for example, analyze, develop, draft, and implement relevant antitakeover defenses for you. To this end, please feel free to request your quote. Skip to main content Skip to primary sidebar Show Offscreen Content. Antitakeover defenses allow shielding your company from hostile takeovers.
Is your business lucrative enough for others to hunt for? As you may appreciate, any company may suddenly fall prey to a bigger rival. With this in mind, how can you protect your company from a hostile takeover?
There are actually 17 options for you to choose from. Stock repurchase 2. Poison pill 3. Staggered board 4. Shark repellants 5. Golden parachutes 6. Greenmail 7. Standstill agreement 8. Leveraged recapitalization 9. Leveraged buyout Crown jewels Scorched earth Lockups Pacman White knight White squire Change of control provisions Much has been written, often in dramatic and ominous language, about hostile takeovers and the various steps companies take to prevent them.
While most articles and books view such events from the perspective of investment bankers and corporate officers, little has been written about the impact of hostile takeovers on shareholders of target companies.
Yet these shareholders can experience significant financial consequences when the target company's board activates a defense or signals its intention to do so by adding defensive strategies to the corporate charter after the news of an impending takeover breaks. To assess the ramifications of a takeover, shareholders need to identify and understand the various defensive strategies companies employ to avoid one.
These shark repellent tactics can be both effective in thwarting a takeover and detrimental to shareholder value. This article will discuss the effects of some typical shark repellent and poison pill strategies. Martin Lipton is the American lawyer credited in for creating a warrant dividend plan, also commonly known as a shareholders' rights plan.
At the time, companies facing a hostile takeover had few strategies to defend themselves against corporate raiders , investors such as Carl Icahn and T. Boone Pickens, who would purchase large stakes in companies in an attempt to gain control. A shareholders' rights plan triggers immediately after the potential acquirer reveals their takeover scheme.
These plans give existing shareholders the opportunity to buy additional company stock at a discounted price. Shareholders are tempted by the low price to buy more stock, thereby diluting the acquirer's ownership percentage. This makes the takeover more expensive for the acquirer and could potentially thwart the takeover entirely. At the very least, it gives the company's board of directors time to weigh other offers.
A shareholders' rights plan is a type of "poison pill" strategy because it makes the target company hard to swallow for the acquirer. For shareholders, however, a poison pill can have harsh side effects. The move made the company too expensive for Schnatter's hostile takeover plan. While the poison pill warded off the hostile takeover of Papa John's, its beneficial effects for shareholders were temporary at best.
The elevated stock price tumbled a few weeks after the takeover threat subsided, in part, due to legal struggles with Schnatter. In addition to causing a temporary spike in stock prices, a shareholders' rights plan can have the negative side effect of preventing shareholders from reaping any profits that might occur should the takeover be successful.
A voting rights plan is a clause a company's board of directors adds to its charter in an attempt to regulate the voting rights of shareholders who own a predetermined percentage of the company's stock.
Management might use voting rights plans as a preemptive tactic to prevent potential acquirers from voting on the acceptance or rejection of a takeover bid. Management might also use a voting rights plan to require supermajority voting to approve a merger.
With such a stringent clause in effect, many corporate raiders would find it impossible to gain control of a company. Often companies find it difficult to persuade shareholders that such clauses are beneficial to them, particularly since they could prevent shareholders from achieving gains that a successful merger could bring. In fact, the adoption of voting rights clauses is often followed by a fall in the company's share price. This defensive tactic hinges on making it time-consuming to vote out an entire board of directors, thus making a proxy fight a challenge for the prospective raider.
Instead of having the entire board come up for election at the same time, a staggered board of directors means that directors are elected at different times for multi-year terms. Since the raider is eager to fill the company's board with directors that are friendly to the takeover plans, having a staggered board means that it will take time for the raider to control the company via a proxy fight.
The target company is hoping the raider will lose interest rather than engage in a protracted fight. While employing a staggered board of directors could benefit company management, there is no direct benefit to shareholders. Greenmail is when a targeted company agrees to buy back its shares from the prospective raider at a higher price in order to prevent a takeover.
As such, many companies will seek a friendly third-party company, often referred to as a white knight, to buy their assets. Once the hostile buyer drops the bid, the target company can buy its assets back from the strategically chosen third party. Cons: This is a high-risk defense. Without a white knight, the company will lose its most valuable assets.
How to Navigate an International Business Environment. Hostile Takeover by CFI. Hostile Takeover by Investopedia. The C-suite is one of the most important levels of any organization. Our business school has built and sustained a legacy of excellence for nearly years.
We have a strong global network. We attract some of the best and brightest faculty and student talent from all over the globe. Our expertise in experiential learning is pioneering and transformative.
We have something very special here. Our trend for the past decade has been to move consistently upward. I am committed to helping continue on this trajectory as we inspire those around us through our research, our teaching, and our engagement with the world. Skip to main content. What qualifies as a hostile takeover of a company? Reasons for hostile takeovers Mergers and acquisitions are common endeavors for companies that want to expand their operations, gain new skills and resources, or reduce competition, as well as those receiving pressure from their shareholders to grow the business.
Benefits of hostile takeovers While the initial proposal may be unfavorable to the targeted company, hostile takeovers have the potential to improve stock prices for both acquirers and targets, according to the Financial Industry Regulatory Authority.
Costs of hostile takeovers The downsides of acquisition include the risk of falling stocks and company value and the higher cost of a forced sale. Mainly to protect shareholders from the board using company cash and paying too much for stock simply to save management. Having stock securities with differential voting rights DVRs is one of the most common pre-emptive lines of defense against a hostile corporate takeover.
For this reason, they usually trade at a discount or pay a higher dividend in order to counteract the lesser voting rights. For example, for every shares owned you might only get 1 vote. In other words, this means not all shares are equal in voting and a hostile party might be able to buy the shares, but not control the company. An employee stock ownership plan ESOP is a common benefit offered to staff as part of a firms retirement plan package.
They offer a tax saving to both the company and its shareholders. This is a slightly risky defence because the corporation can not control how its staff vote. However, the theory here is that the more of the company owned by the staff, the more votes in favor of the board and management. Be sure to treat staff nicely if you have this in your bag of defense tricks.
The Williams Act is a federal law that was enacted in Among other things, it defines the rules of acquisitions and tender offers. A corporate raider is simply a financier who made their practice of executing hostile takeover bids; either for control, to remove competition or to resell them for a profit. In short, the act tries to block people making cash tender offers for stocks they owned.
Cash tender offers can, and generally, do destroy value by forcing shareholders to tender shares on a shortened timetable. The act requires mandatory disclosure of information concerning takeover bids.
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