Anti Takeover Strategy
Introduction
A takeover means change of ownership and usually change of management. The current management can resist the takeover bid in various ways:

  • The Golden Parachute is a provision in a CEO's contract to ensure that he will get a large bonus in cash or stock if the company is acquired.
  • The supermajority is a defense that requires an overwhelming majority of shareholders to approve of any acquisition. This makes a takeover much more unlikely.
  • A staggered board of directors prolongs the takeover process by preventing the entire board from being replaced at the same time. The terms are staggered so that some members are elected say every two years, while others are elected every four years. The acquirer may not want to wait four years for completely reconstituting the board.
  • Dual-class stock allows company owners to hold on to voting stock, while the company issues stock with little or no voting rights to the public. That way the new investors cannot take control of the company.
  • A poison pill refers to anything the target company does to make itself less valuable or less desirable as an acquisition after the raid has begun. For example, high-level managers and other employees may threaten to leave the company if it is acquired. A specific asset of a company like the R&D center or a particular division may be sold off to another company, or spun off into a separate corporation. A flip-in provision may allow current shareholders to buy more stocks at a steep discount in the event of a takeover attempt. The flow of additional cheap shares into the total pool of shares dilutes their value and voting power. A more drastic poison pill involves deliberately taking on large amounts of debt.
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