Anti Takeover Strategies
Since the emergence of modern corporate America, companies have sought out ways to protect themselves from hostile takeover attempts. Corporations employ a variety of strategies to ward off potential attackers, ranging from straightforward restrictions, to elaborate plans that employ multiple layers of protection. These strategies, while effective in discouraging hostile takeovers, have been controversial as they can cause shareholders to suffer diluted returns, and can create entrenched management incapable of change.
One of the most popular anti-takeover strategies is the implementation of a Poison Pill provision. Poison pills have been used since the 1980s to protect companies from waves of hostile takeovers. Poison pills are implemented by companies when they issue additional shares of stock or bonds, which can be purchased cheaply by the current shareholders should the company be the target of an unfriendly bid. This discourages potential buyers, as the acquisition would require its shareholder to purchase a high cost convertible security.
Another often used anti-takeover tactic is the Shareholder Rights plan, commonly referred to as the “Syringe Plan”. This is similar to a poison pill, in that it dilutes the value of the company by creating a large number of additional shares that can be purchased only at a discounted price. The greatest difference between this and a poison pill is that it does not empower the current shareholders to exercise their rights, but gives the board of directors the authority to reject the proposal of potential buyers.
The “Pac-Man Defense” is another popular anti-takeover tactic. This strategy is employed by a company in order to regain the advantage over buyers. A target company can employ the Pac-Man defense by initiating its own hostile bid for the company making the offer. By doing this, they drive up the cost of the acquisition and can potentially negate any gains that may have been made.
Lastly, another commonly used anti-takeover strategy is known as the “Greenmail” strategy. This is a tactic employed by companies where they offer to repurchase shares at a premium price in exchange for the buyer not continuing with the takeover attempt. It is an attempt by the board of directors to convince the potential buyer to abandon the hostile takeover attempt.
The use of these anti-takeover tactics has been controversial as some people argue that they are used to protect the interests of management, rather than that of the shareholders. While these strategies can be effective in discouraging hostile takeovers, they can come at the expense of the shareholders as they may be required to pay a substantial premium for their shares in the event of such a takeover attempt.
In conclusion, the use of anti-takeover strategies has been a common practice since the emergence of modern corporate America. These strategies, while effective in warding off hostile takeovers, have been controversial as they can reduce shareholder returns and create a board of directors that is unable to change. Despite this, anti-takeover strategies continue to be used by many companies as they attempt to protect their firms from unwanted takeover attempts.
