Shareholders Rights Plan The most common form of
Post# of 96879
Posted On: 12/07/2015 11:20:59 PM
Shareholders Rights Plan
The most common form of takeover defense is the shareholders' rights plans, which activates at the moment a potential acquirer announces its intentions. Under such plans, shareholders can purchase additional company stock at an attractively discounted price, making it far more difficult for the corporate raider to take control.
Staggered Board of Directors defense:
Making an Acquisition
Perhaps a better strategy for target shareholders is for the company to make an acquisition, preferably through stock swaps or a combination of stock and debt. This has the effect of diluting the raider's ownership percentage and makes the takeover significantly more expensive. Although stock prices may drop upon the target's acquisition of the third party, shareholders can benefit in the longer term from operational efficiencies and increased revenues.
Greenmail
A company may also pursue the greenmail option by buying back its recently acquired stock from the putative raider at a higher price in order to avoid a takeover.
Because the shares must be purchased at a premium over the takeover price, this "payout" strategy is a prime example of how shareholders can lose out even while avoiding a hostile takeover
Increasing Debt
Increasing debt as a defensive strategy has been deployed in the past. By increasing debt significantly, companies hope to deter raiders
White Knight
If a determined hostile bidder thwarts all defenses, a possible solution is a white knight, a strategic partner that merges with the target company to add value and increase market capitalization. Such a merger can not only deter the raider, but can also benefit shareholders in the short term, if the terms are favorable, as well as in the long term if the merger is a good strategic fit.
Acquiring the Acquirer
Ironically, a takeover defense that has been successful in the past, albeit rarely, is to turn the tables on the acquirer and mount a bid to take over the raider. This requires resources and shareholder support, and it removes the possibility of activating the other defensive strategies
The most common form of takeover defense is the shareholders' rights plans, which activates at the moment a potential acquirer announces its intentions. Under such plans, shareholders can purchase additional company stock at an attractively discounted price, making it far more difficult for the corporate raider to take control.
Staggered Board of Directors defense:
Making an Acquisition
Perhaps a better strategy for target shareholders is for the company to make an acquisition, preferably through stock swaps or a combination of stock and debt. This has the effect of diluting the raider's ownership percentage and makes the takeover significantly more expensive. Although stock prices may drop upon the target's acquisition of the third party, shareholders can benefit in the longer term from operational efficiencies and increased revenues.
Greenmail
A company may also pursue the greenmail option by buying back its recently acquired stock from the putative raider at a higher price in order to avoid a takeover.
Because the shares must be purchased at a premium over the takeover price, this "payout" strategy is a prime example of how shareholders can lose out even while avoiding a hostile takeover
Increasing Debt
Increasing debt as a defensive strategy has been deployed in the past. By increasing debt significantly, companies hope to deter raiders
White Knight
If a determined hostile bidder thwarts all defenses, a possible solution is a white knight, a strategic partner that merges with the target company to add value and increase market capitalization. Such a merger can not only deter the raider, but can also benefit shareholders in the short term, if the terms are favorable, as well as in the long term if the merger is a good strategic fit.
Acquiring the Acquirer
Ironically, a takeover defense that has been successful in the past, albeit rarely, is to turn the tables on the acquirer and mount a bid to take over the raider. This requires resources and shareholder support, and it removes the possibility of activating the other defensive strategies
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