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Every group is potentially subject to takeover. There will be a price at which the shareholders may be induced to sell their shares. If the bid is received, then the directors may consider and recommend accepting the offer to the shareholders. A problem arises when a publicly quoted company receives an unwelcome bid with a clear objective of buying the group at a price below the value that the managementput on it. How to defend against hostile takeover - Strategies Pac-Man defence A defensive tactic used by a targeted firm in a hostile takeover situation. In a Pac-Man defence, the target firm turns around and tries to acquire the other company that has made the hostile takeover attempt. This term has been accredited to Bruce Wasserstein, chairman of Wasserstein & Co. Poison Pill The target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills: 1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount. 2. The "flip-over" allows stockholders to buy the acquirer's shares at a discountedprice after the merger. Crown jewel defence The crown jewel defence is a strategy in which the target company sells off its most attractive assets to a friendly third party or spin off the valuable assets in a separate entity. Consequently, the unfriendly bidder is less attracted to the company assets. Other effects include dilution of holdings of the acquirer, making the takeover uneconomical to third parties, and adverse influence of current share prices. Scorched-earth defence When a target firm implements this provision, it will make an effort to make it unattractive to the hostile bidder. For example, a company may agree to liquidate or destroy all valuable assets, also called "crown jewels", or schedule debt repayment to be due immediately following a hostile takeover. In some cases, a scorched-earth defence may develop into an extreme anti-takeover defence called a "poison pill". Golden parachute A golden parachute is an agreement between a company and an employee (usually upper executive) specifying that the employee will receive certain significant benefitsif employment is terminated. Sometimes, certain conditions, typically a change incompany ownership, must be met, but often the cause of termination is unspecified. These benefits may include severance pay, cash bonuses, stock options, or otherbenefits. Fatman The targeted company acquires a large and/or under performing company in orderto decrease it attractiveness to the raider.
Put up other defenses
1Buy back some of your own shares. This is a common defensive measure for both large and small corporations. Of course you'll need to have available capital. 2Examine your corporate charter. Clauses may exist that provide for removal of directors only for cause or for staggered board terms. The latter make it difficult for the stalking company to eliminate an entire board via a proxy vote and replace it with directors more receptive to the takeover.
The term is a neologism derived from blackmail and greenback as commentators and journalists saw the practice of said corporate raiders as attempts by well-financed individuals to blackmail a company into handing over money by using the threat of a takeover. 5Spin off a fast-growing subsidiary. Greenmail Greenmail or greenmailing is the practice of purchasing enough shares in a firm to threaten a takeover and thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover. will fight back with both a stock repurchase plan and a spin-off of one or more divisions. which often include antitakeover provisions. Be sure to get your attorney's advice on the legality of the divestiture. Consult your attorneys about adding an amendment to your bylaws to make a takeover more difficult. A hostile acquiring company would then have to pay a significant fee to your partner when purchasing your firm. at least not without exposing itself to a lawsuit. A company offers a bear hug when it believes the target company's management may decline the offer. Because the management has a fiduciary responsibility to act in the best interest of shareholders. 4Install a company benefits plan with expensive change-ofownership provisions. It is a form of a hostile takeover and may be used as a form of risk arbitrage. .3Research your state's corporation laws. 6Enter into a partnership with another company and include a large breakup fee in the agreement. Bear Hug An offer by a company to buy another company for a price per share far above the share price's fair market value. thus reducing your company's appeal. The best tactic may be a combination of the above. 7Respond rapidly and fervently at the first hints of a takeover attempt. for example. Many companies. the bear hug is essentially an offer the management cannot refuse.