Anti-takeover

Defense
Strategies

Proactive

1. Staggered
Board
2. Poison Pills
3. Golden
Parachute

Reactive

1. White Knight
2. White Squire
3. Greenmail
4. Crown Jewel

Anti-takeover Defense Mechanism

1. Poison Pill
With a poison pill the company makes itself less attractive to the bidder. It is
used by the board of directors to prevent the acquirer from directly negotiating
with the shareholders, instead force the acquirer to negotiate with the board
directly. There are 2 types of poison pills:
Flip in: By the method of flip in the target company allows its present
shareholders only to buy more shares of the company at a lower price
than the market level i.e. shares at a discount.
Flip over: A flip over bill issues rights rather than shares. It issues rights
to its existing shareholders the right to buy the acquiring companys
shares at a discounted price in case the acquisition or merger is
completed.

2. Staggered Board
This method of defense usually delays the takeover by a year or two. This is
moderately effective but extremely effective when used with other strategies.
When the target company comes to know about the intentions of the bidding
company to acquire it by the method of buying shares and being the largest
shareholder so as to become a board member; it staggers its board into a group

of few. Out of these groups formed only one group may be ousted by means of
elections. So for a board of 3 groups it would take at least 2 years to replace the
board completely and acquire the company. Hence this strategy is useful not in
preventing but delaying the takeover.

3. Green Mail
It is employed when a bidder is looking for short term profit. Green mail is also
known as goodbye kiss wherein a substantial premium is paid for a significant
shareholders stock in return to the agreement that it will not initiate the bidding
for a certain period of time. This period may be as long as 5 years or more.

4. White Knight
The company that attempts the hostile takeover of the target company is known
as the Dark Knight. In this strategy the target company starts looking for a more
favorable acquirer known as White Knight. It requests the White Knight to
acquire it in order to protect itself from the Dark Knight.

5. White Squire
The White Knight and White Squire strategies need a third party. White squire is
a different variation of white knight strategy. In this strategy the third party does
not take over the majority shares of the target company but only acquires that
much share which is sufficient to prevent the bidder from acquiring the
company.

6. Crown Jewel Defense

Sometimes a hostile takeover is aimed at a particular asset of the target
company, in such cases Crown Jewel defense is effective. In this kind of defense
the target company starts selling off its most valuable assets known as crown
jewels to a friendly third party in order to make it less attractive to the acquirer.

7. Golden Parachute
It is a defensive strategy that aims to make it an expensive takeover deal for the
acquirer by issuing several lump sum payments to the Board of Directors and
the management team. The management team also opposes the takeover in the
fear of losing their jobs. This strategy is often used in combination with the other
strategies.