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Take Over Defense Mechanisms used by the target company

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  1. 1. 1
  2. 2. Periodic or continual measures a firm's management takes to discourage unwanted or hostile takeovers. 2
  3. 3. An antitakeover measure stipulating that shareholders on the receiving end of a hostile takeover may buyshares in their own company at a price below fair market value. Once the acquisition is complete, the provision allows these same shareholders to buy more shares in the new company for below market value. This forces shareholders in the acquiring company to suffer devaluation and dilution of their own shares. This is done to discourage hostile takeovers among the shareholders of the acquiring companies. 3
  4. 4. • FLIP IN Flip-in allows existing shareholders (except the acquirer) to buy more shares at a discount. • FLIP OVER An example of a flip-over occurs when shareholders have the right to purchase stock of the acquirer on a 2-for-1 basis in any subsequent merger. • PENSION PARACHUTE A firm can use any surplus pension assets to increase pension benefits. A pension parachute is used to make the firm less attractive to takeover, for it prevents the acquiring company from using the excess pension assets to help finance the acquisition. 4
  5. 5. Raider instructs brokers to buy the shares as soon as the stock markets open. The acquirer then builds up a substantial stake in its target at the current stock market price. Because this is done early in the morning, the target firm usually doesn't get informed about the purchases until it is too late, and the acquirer now has controlling interest. 5
  6. 6. • The holding of a large block of stock of a target company by an unfriendly company, with the object of forcing the target company to repurchase the stock at a substantial premium to prevent a takeover. 6
  7. 7. 􀁺 The target company issues a large number of bonds that come with the guarantee that they will be redeemed at a higher price if the company is taken over. 􀁺If a company is in danger, the redemption price of the bonds expands, kind of like macaroni in a pot! 7
  8. 8. • Management threatens en masse resignation in the event of a takeover • Useful if they are a good management team • Hostile takeovers often result in the management being fired anyway, so the effectiveness of a people pill defense really depends on the situation. 8
  9. 9. • This is a company that gallops in to make a friendly takeover offer to a target company that is facing a hostile takeover from another party (a “black knight”). • The white knight offers the target firm a way out with a friendly takeover. 9
  10. 10. • An antitakeover measure in which a target company attempts a hostile takeover of the acquiring company. That is, an acquiring company attempts a hostile takeover, and, rather than submitting to the takeover, the target company attempts the same thing on the acquiring company. 10
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