There are two main types of anti-takeover defenses: preventive measures and active measures. Preventive measures include poison pills, classified boards, and supermajority provisions which make a hostile takeover more difficult. Active measures are used in response to a specific takeover attempt and include greenmail, standstill agreements, white knights, pac-man defenses, and restructuring tactics.

1. Take Over defenses MERGER AND ACQUISITION

2. Introduction Not all mergers are welcome During the 1980s, a variety of devices were developed to defend firms from unwelcome takeover proposals Anti take over defenses Preventive measures Active measures Chapter 19-

3. Poison Pill Flip in plan Flip over plan Back end plans Voting plans People pill Preventive measures Greenmail Standstill agreement White knights White squire Pac man defense Restructuring Active measures

4. Memorandum Article of Association Corporate charter amendments Shark Repellant Legal existence Corporation’s name Existence purpose Authorized Share Identity of Directors Rules governing the internal management

5. Corporate charter amendments Common types Classified boards Super majority provisions Fair price amendment Dual Capitalization

6. Classified boards Divided into different classes One class to be reselected each year Delays effective transfer of control in take over Example Suppose twelve members in a group Divided into group of three Hostile bidder has to wait two more annual meetings inspite of holding majority of stocks

7. Super majority provisions Approval by large number of votes 2/3 rd or 80% votes for merger approval Board out clause Give up the super majority provision Interested directors cannot participate in voting on issue of merger

8. Fair price amendments Acquirer to pay fair price to shareholders of the firm State in form of minimum price or P/E multiple Use at two tiered bid by the acquirer

9. Dual capitalization New class of securities with voting rights To friendly stockholders Stock holders prefer special voting stocks Increase dividend and power Management retains the voting power

10. Active Anti-takeover defenses

11. Greenmail Buying back of share at premium Signing a Standstill Agreement Standstill Agreement Not to increase holdings for particular period Accompanied by target’s agreement Acquirer's refusal Prevents falling into hands of another bidder

12. White Knights Another company more acceptable More favorable terms than original bidders Terms required Not to disassemble No layoffs

13. White squire Target sells only a block of its stock to third party it considers to be friendly In return, white squire may receive: board seats, dividend, discounted shares Preferred stock usually used in white squire transactions because it enables board to tailor characteristics of stock as described

14. Pac-Man Defense Highly aggressive defense technique Counter tender offer in response Possible only if financial resources May result into May defend May end up extremely destructive High debts

15. Restructuring Going private Buying bulk of the shares Sales of attractive assets Making less attractive Undertaking major acquisitions Draining its excess cash balance Liquidating the firm When liquidation is better than the bid