Anti Hostile Takeover Mechanisms
Anti-takeover mechanisms, also known as "poison pills," are a set of defense strategies that companies use to protect themselves from hostile takeovers. A hostile takeover occurs when an acquiring company attempts to acquire another company against the wishes of its management and board of directors.
Some of the most common anti-takeover mechanisms include:
- Golden parachutes: These are agreements that provide executives with large payouts in the event of a takeover. The idea is that these payouts will make it more difficult for the acquiring company to make a profit from the takeover.
- Poison pills: These are financial instruments, such as stock options or warrants, that can be issued to existing shareholders at a discounted price. The idea is that by diluting the value of the company's shares, a hostile acquirer will be less likely to pursue a takeover.
- Shareholder rights plans: Also known as "poison pills," these plans give shareholders the right to buy additional shares at a discounted price in the event of a hostile takeover. The idea is that by increasing the number of shares outstanding, the acquirer will be less likely to proceed with the takeover.
- Staggered Board of Directors: This refers to a corporate governance structure in which the terms of the members of the board of directors are staggered, rather than all expiring at the same time. This makes it more difficult for an acquirer to gain control of the board and thus the company.
- Supermajority provisions: This refers to a provision in a company's bylaws that a certain percentage of shareholders must approve a proposed merger or acquisition. This makes it more difficult for an acquirer to gain control of the company.
These mechanisms are implemented to protect the interests of the current shareholders and the management of the company. As a result, these mechanisms make it more difficult for a hostile acquirer to gain control of the company and can also make a takeover more expensive and time-consuming.