Hi, Could we get a summary of take over defences for M&A. E.g white knight, bear hug, poison pill etc? Or could you please point me to the text? Thanks!
in corporate finance - SS 9
Pre-offer defense mechanisms: - Poison pills are a legal defense that makes it prohibitively costly for an acquirer to take control of a target without the prior approval of a company’s board of directors. Most poison pills make the target company less attractive by creating rights that allow for the issuance of shares of the target company’s stock at a substantial discount to market value (flip-in pill). In the case of the flip-over pill the target company’s common shareholders receive the right to purchase shares of the acquiring company at a significant discount from the market value. - Poison puts allow the firm’s bondholders to sell (put) their bonds back to the company. The effect of this pre-offer defense mechanism is that an acquiring firm must be prepared to refinance the target company which increases the need for cash and raises the cost of an acquisition. - Incorporation in a state with restrictive takeover laws - Staggered board of directors means that only a portion of the firm’s board seats are up for election each year. - Restricted voting rights imply that the target company adopts a mechanism that restricts stockholders who have recently acquired a large block of shares from voting. - Supermajority voting provisions require a supermajority (80% as opposed to 51 percent) for matters relating to M&A. - Fair price amendments require that companies not allow mergers if the offer price is below some minimum threshold. - Golden parachutes are compensation agreements between senior managers and the target company. It usually involves a lucrative payout for management in the case of a takeover. Post-offer defense mechanisms: - Just say no defense: management tries to make the case to shareholders that the offer price is too low. - Litigation or in other words you file a lawsuit against the acquiring firm claiming anti-trust violations and/or securities violations. This tactic allows you to buy time before a concerted response to the offer can be developed. - Greenmail is a payoff to the acquiring firm if they terminate the hostile takeover attempt. This technique involves an agreement allowing the target to repurchase its own shares back from the acquiring company, usually at a premium. - Share repurchase: here the target company will usually use debt to purchase its own shares from any shareholder. This can force the acquirer to raise their bid price and it also makes the target less attractive as its debt/equity ratio is increased. When buying all of its shares back, we call it - Leveraged recapitalization: debt is used to repurchase shares. - Crown jewel defense implies that a target may decide to sell off a subsidiary or asset to a third party to discourage takeovers. - Pac-man defense. The target can make a counteroffer to acquire the hostile bidder. - White knight defense often the best outcome is for the target company’s board to seek a third party to purchase the company in lieu of the hostile bidder. Once a white knight is public, it may draw an additional higher bid. This procedure can result in the winner’s curse. - White squire defense says that the target seeks a friendly party to buy a substantial minority stake in the company; enough to block the hostile takeover without selling the entire company.
thanks all…you’re the best!