Question

Identify the more common forms of takeover defence, and suggest why they are used.

Answer 1

Takeover defences are the actions by the managers or employees to resist the acquisition of the firms. They use the defense because of the fear of the changes and insecurity the new managemnt will implement.

Straggered Board- The purchaser / bidder cannot obtain control of the target immediately after obtaining the majority of shares% o

Super-majority - A high percentage of shares required to approve the merger , using 80% of vote from board can avoid this

Poison Pill - Rights to preferred stock issued to shareholders. Right can be exercised after tender offer or accumulation of the large no of shares by outside party.

Dual class Recapitalization - Distributes a new class of equity to stock holders with superior voting rights but inferior dividend or marketability. Allows the shareholder to exchange the new shares for ordinary common stock.

These are mainly the prior take over defenses there are other defenses which are post take over namely

Namely

Targeted Repurchase - Repurchase of shares held by a shareholder usually by oaying more

Stand still Agreement - Limitis ownership by a given firm for a specific period of time.

Litigation- File a suit against the bidder for security laws

Assets Restructuring - Assets bought that a the bidder doesnot require or sold what he needs the most will create trust issues

Liability Restructuring - Issuing shares to a creditor with good relation, Increasing no of shares. Etc.

All these will create some issues with the bidder.