Shark Repellants

Anti takeover strategies

 Poison Pill
Known as shareholders rights plan where the management makes it
expensive for the raider to take over
Involves either diluting acquiring companys interest or by allowing target
shareholders to acquire share in acquiring company at bargain prices
Securities are created called poison pill- special kind of stocks with much
higher price tag
The pills provide their holders a special rights subject to the occurrence of
an event
The board of directors use the pill without the approval of the
shareholders by either quickly altering the pill or redeeming it
Oracle and people soft: people soft flooded the market with new shares
It may also distribute rights rather than shares of preferred stock
The legality is questionable due to:
1) Altering the relationship without approval
2) Unequal treatment of the shareholders
 Golden Parachute
Lucrative benefits to top executive against
takeover
It refers to a clause in the service contract where
the executives are offered hefty benefits, shares,
bonuses either paid in lum sum or in full or
partial rates of compensation
Not applied to dismissal from service as the
situation is beyond the control of the managers
Only in case of amalgamation or takeover which
ultimately leads to the separation of previous
management from their service
 Changes to Corporate Charter
Changes in charter to hold back the take over but should not be against
the charter of association
Four types:
1. Supermajority amendments
Two third or sometime 90% of the shareholder will have to approve for any
transaction relating to take over
2. Fair price amendment
When a fair/high price is paid for stock without the approval of majority
3. Classified boards/staggered boards
Ideal is when 9 members board is divided into three classes each for three
years
4. Authorization of preferred stocks
When new type of securities are created with different voting rights
5. Super majority provision
A very high percentage of share to approve a merger such as 80%
 Green mail
Buying back of stock by offering a premium/
or offering higher price for a recently sold
stock
This may cause drop in the stock prices for
other shareholders
It is result of the negligence by the board of
directors
 Crown Jewel
The locks out its core businessin the form of
spinoff of the valuable business to the friendly
company or sell it off to a separate entity
The bidders bids for shares that does not
include ownership of the core business
The bidder is deprived of the prime benefit
 White Night
When there is expected hostile takeover the
stock option is offered to a company thought to
be a friendly and appropriate suitor
In this case the bid offered by the friendly
company is more attractive then other bidders
A bidding war may arise ensue against which the
white night may ask for protection
It is in the form of lockup i.e stocks not yet sold at
a fixed price or acquire some asset at a fair price
 Pac Man Defense
Counter purchase of shares by the target against the attacker
The target need to have sufficient capital and assets as the
company may end up in debts
In the situation when the raider company is smaller and the target
is large enough
A purchase of even a small number of shares of the attacker will
enable the target to initiate legal claims against the attackers
First it requires great amount of free cash, second it waives the
mistrust in the attacker, third it can not stop merger but will only
help management from loosing their jobs and fourth it may not
attain the goal unless it acts faster than the attacker
 People pill
Resignation en mass incase of hostile take
over
Subject to the nature of the business and
situation
 Jewish Dentist
Story of Sterndent. Joe flom the leading legal
professional arranged for the white knight to
stop Magus Corporations(held by Kuwait
investment company) from take over
The clients were all Jewish