Antitakeover Amendments

• These amendments are also called as

Shark repellants.
• These are put in place to strengthen the
ability of the firm’s BoD to retain control.
 Types of amendments
• The common types of amendments are,
1.Staggered/Classified Boards
2.Supermajority Provision
3.Fair Price Amendments
4.Dual Capitalization
 Supermajority Provisions
• A supermajority provisions requires approval
by a larger no. of votes than the normal
simple majority requirements, to approve the
merger.
• Generally, supermajority clauses require
approval by 2/3rd or even 80% votes for
approval of the merger.
• In the extreme cases amendments has
provided for as high as 95% of the votes for
merger approval.
 Fair Price Amendments
• Fair price provisions require the acquirer
to pay a “fair” price to the minority
shareholders of the firm.
• The fair price may be stated in the form of
a minimum price or in terms of a price-
earnings multiple at which a tender offer
can be made.
 Dual Capitalization
• This is a defense mechanism used against
a hostile takeover bid, according to which
the BoDs are authorized to create a new
class of securities with special voting rights.
• This voting power is given to a group of
stockholders who are friendly to the mgt.
This results in the mgt. increasing its voting
control of the organization.
 Staggered/Classified Boards
• The BoDs are divided into a no. of
different classes.
• Only one class is up for reelection each
year.
• These amendments delay the effective
transfer of control in takeover.
 Anti Takeover Defenses

• Stand Still Agreement

• Green Mail
• White Knight
• Litigation
• Pac Man Defense
• White Squire
 Anti Takeover Defenses

• Recapitalization
• Crown Jewels
• Restructuring
• Share Repurchase
• Suicide pill
• Treasury stock
• ESOP’s
 Anti Takeover Defenses

• Top-ups
• Voting plans
• Trigger
• Shark Repellent
• Scorched earth defense
• Safe Harbor
 Anti Takeover Defenses

• Macaroni Defense
• Lock-up provision
• Non-voting stock
• Nancy Reagan Defense
• Pension parachute
• Killer bees
• Jonestown Defense
Stand Still Agreement

• The acquiring company and the target

company can reach agreement whereby the
acquiring company ceases to acquire stock
in the target for a specified period of time.
• This stand still period gives the Target
Company time to explore its options.
• However, most stand still agreements will
require compensation to the acquiring firm
since the acquirer is running the risk of
losing synergy values.
Green Mail
• If the acquirer is an investor or group of
investors, it might be possible to buy back
their stock at a special offering price.
• The two parties hold private negotiations
and settle for a price.
• However, this type of targeted repurchase
of stock runs contrary to fair and equal
treatment for all shareholders.
• Therefore, green mail is not a widely
accepted anti-takeover defense.
White Knight

• If the target company wants to avoid a hostile

merger, one option is to seek out another
company for a more suitable merger.
• Usually, the Target Company will enlist the
services of an investment banker to locate a
"white knight." The White Knight Company comes
in and rescues the Target Company from the
hostile takeover attempt.
• In order to stop the hostile merger, the White
Knight will pay a price more favorable than the
price offered by the hostile bidder.
Litigation

• One of the more common approaches to stopping

a merger is to legally challenge the merger.
• The Target Company will seek an injunction to
stop the takeover from proceeding.
• This gives the target company time to mount a
defense.
• For example, the Target Company will routinely
challenge the acquiring company as failing to give
proper notice of the merger and failing to disclose
all relevant information to shareholders.
Pac Man Defense

• As a last resort, the target company can

make a tender offer to acquire the stock of
the hostile bidder.
• This is a very extreme type of anti-takeover
defense and usually signals desperation.
White Squire

• Very similar to a "white knight", but instead

of purchasing a majority interest, the
squire purchases a lesser interest in the
target firm.
Recapitalization

• Restructuring a company's debt and equity

mixture, most often with the aim of making
a company's capital structure more stable.

• Essentially, the process involves the

exchange of one form of financing for
another, such as removing preferred
shares from the company's capital
structure and replacing them with bonds
Crown Jewels

The most valuable units of a corporation, as

defined by characteristics such as
• profitability
• asset value  
• future prospects
The origins of this term are derived from the
most valuable and important treasures
that sovereigns possessed.
Restructuring

• A significant modification made to the debt,

operations or structure of a company.
• This type of corporate action is usually made
when there are significant problems in a
company, which are causing some form
of financial harm and putting the overall business
in jeopardy.
• The hope is that through restructuring,
a company can eliminate financial harm and
improve the business.
Share Repurchase

• A program by which a company buys back

its own shares from the marketplace,
reducing the number of outstanding shares.

• This is usually an indication that the

company's management thinks the shares
are undervalued.
 Poison Pill
• Poison pills are the shares issued by a
firm its shareholders to make the firm less
valuable in the eyes of the hostile bidder.

• These shares have no value till the

happening of a triggering event.
 Types of Poison Pill
• Flip-in Plan • In this plan the share holders are
given a common stock dividend in
the form of rights for each share
• Flip-over they own.
• Whenever the bidder acquires
Plan
certain percentage of stock the
rights are activated.
• The flip-in poison pill plan permits
the current shareholders except
the acquirer, to buy more shares
of the issuing co. at a discount.
 Types of Poison Pill
• Flip-in Plan • In this plan the shareholders are
given a common stock dividend
in the form of rights to acquire
• Flip-over the firm’s ES/PS at an exercise
price the market price.
Plan • The rights are activated when
the bidder acquires a certain %
of stock.
• The rights flip over and allow
the holders to purchase the
acquirer’s shares at heavy
discount
 Back End Plans
• Also called as note purchase rights plan.

• Under this plan the shareholder receive a

rights dividend which gives them the
capacity to exchange the right along with a
share of stock for cash or senior securities
that are equal in value to a specific back
end price fixed by the BoD of the issue.
 Back end Plans
• The rights exercised when the acquirer
purchases shares in excess of a specific
% of the target’s outstanding shares.
• The back end price is set above the
market price to establish a minimum price
for a takeover.
 Poison Puts
• These involve issuance of bonds that contain
a put option which becomes exercisable in
the event of a hostile takeover.
• The option allows the holder to sell a
particular security to another during a certain
time period and for a specific price.
• The bond demand for a large cash from the
merged firm and will make the prospect of
takeover more unattractive.
 People Pill
• Sometimes the entire management team
threatens to resign, in event of a takeover.

• This threat is especially useful if the

incumbent management is a good team.
Losing the team could seriously impact the
company’s performance and hence
discourage the raider to really attempt a
takeover.