8/11/2019 Defense Strategies_Vishwajeet Singh(1)

1/2

Anti-takeover Defense Mechanism

1. Poison Pill

With a poison pill the company makes itself less attractive to the bidder. It is used by the board of

directors to prevent the acquirer from directly negotiating with the shareholders, instead force the

acquirer to negotiate with the board directly. There are 2 types of poison pills:

Flip in: By the method of flip in the target company allows its present shareholders only to

buy more shares of the company at a lower price than the market level i.e. shares at a

discount.

Flip over: A flip over bill issues rights rather than shares. It issues rights to its existing

shareholders the right to buy the acquiring companys shares at a discounted price in case

the acquisition or merger is completed.

2. Staggered Board

This method of defense usually delays the takeover by a year or two. This is moderately effective

but extremely effective when used with other strategies. When the target company comes to know

about the intentions of the bidding company to acquire it by the method of buying shares and being

the largest shareholder so as to become a board member; it staggers its board into a group of few.

Out of these groups formed only one group may be ousted by means of elections. So for a board of

Anti-takeover

Defense

Strate ies

Proactive Reactive

1. Staggered Board

2. Poison Pills

3. Golden Parachute

1. White Knight2. White Squire

3. Greenmail

4. Crown Jewel

8/11/2019 Defense Strategies_Vishwajeet Singh(1)

2/2

3 groups it would take at least 2 years to replace the board completely and acquire the company.

Hence this strategy is useful not in preventing but delaying the takeover.

3. Green Mail

It is employed when a bidder is looking for short term profit. Green mail is also known as goodbye

kiss wherein a substantial premium is paid for a significant shareholders stock in return to the

agreement that it will not initiate the bidding for a certain period of time. This period may be as

long as 5 years or more.

4. White Knight

The company that attempts the hostile takeover of the target company is known as the Dark Knight.

In this strategy the target company starts looking for a more favorable acquirer known as White

Knight. It requests the White Knight to acquire it in order to protect itself from the Dark Knight.

5. White Squire

The White Knight and White Squire strategies need a third party. White squire is a different

variation of white knight strategy. In this strategy the third party does not take over the majority

shares of the target company but only acquires that much share which is sufficient to prevent the

bidder from acquiring the company.

6. Crown Jewel Defense

Sometimes a hostile takeover is aimed at a particular asset of the target company, in such cases

Crown Jewel defense is effective. In this kind of defense the target company starts selling off its

most valuable assets known as crown jewels to a friendly third party in order to make it less

attractive to the acquirer.

7. Golden Parachute

It is a defensive strategy that aims to make it an expensive takeover deal for the acquirer by issuing

several lump sum payments to the Board of Directors and the management team. The management

team also opposes the takeover in the fear of losing their jobs. This strategy is often used in

combination with the other strategies.