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Defense measures against hostile takeover bids

On Behalf of | Sep 3, 2015 | Mergers & Acquisitions

For many in Fort Lauderdale, the term “mergers and acquisitions” implies two companies working together for a synergistic benefit. In fact, this is what happens in most cases. According to The Institute of Mergers, Acquisitions, and Alliances, there were over 15,000 corporate combination transactions in 2014. Most believe a majority of these to have been friendly-takeovers. Yet there are still many cases were companies are targeted for acquisition against the approval of their management teams.

Hostile takeover bids almost always spell trouble for executives of the targeted company. However, there are certain steps that can be taken to help avoid the potential for such a scenario:

  •          Macaroni defense: This refers to a company issuing bonds that promise a redemption at a higher price in the event of a takeover.
  •          Golden parachute measures: These are promises written into the contracts of executives that offer them extremely lucrative compensation packages should they be forced out in an acquisition.
  •          Poison pill provisions: A poison pill aims to dilute the ownership of the raiding party by selling stock to existing shareholders at an extreme discount. It should be noted, however, that California law requires that such a provision already exist in a company’s shareholder agreement, as the state does not recognize different classes of shareholders.

These measures are all points that companies should consider adopting before being targeted for takeover. A company against which a tender offer has already been submitted may have limited options. In such a case, it may need to develop a relationship with another corporation (a “white knight”) who can initiate a friendly takeover instead.

It should be remembered that throughout every step of the takeover defense process, legal advice should be considered to ensure operation within state and federal guidelines.