Poison Sell Case Study

Pre-offer defense tacts:

a) Poison Pill:

These are the extremely effective and tested anti-takeover measures. In its most basic form, the poison pill gives the current shareholders the right to purchase additional shares at a discounted price. With additional equity issue, the firm gets further diluted and this effectively increases the cost of the potential acquirer.

b) Poison Put:

While poison pull focuses on shareholders, poison put focuses on bondholders and gives the authority to the bondholders to demand immediate repayment of their bonds if there is any hostile takeover. Accordingly, the acquirer will have to be ready with additional cash if it is interested in taking over the entity.

c) Staggered Board:

In this strategy,the board of

For example, a resolution may be passed requiring 75% or even 80% of the votes in favor of takeover. Therefore, the acquirer company will fail to gain the majority with 51% of the majority limit.

e) Restricted Voting Rights

Under this strategy, equity ownership above some threshold level, i.e. 15% or 20%, results in a loss of voting rights unless approved by the board of directors. This strategy greatly reduces the effectiveness of the tender offer and forces the acquirer to deal with minority shareholders or deal with the board of directors directly.

Important to note, these pre-offer defenses are used in combination with each other to rebound the takeover effort. For instance,in many hostile takeover attempts, the management may utilize restricted voting rights and supermajority provision rights so that the acquirer could lose voting rights while acquiring shares but still need 75% or 80% approval for the merger to go through.

Post-Offer Defense Mechanism

a) Just say no

This forces the acquirer company to raise its bid in order to stay competitive with the target’s offer and also increase the use of leverage in the target’s capital structure, which can make the target less attractive takeover candidate.

d) Leverage Capitalization

As part of this strategy, the target assumes a large amount of debt that is used to finance share repurchases. Like the share repurchases, the effect here is to create a significant change in the capital structure that makes the target less attractive while delivering value to the shareholders.

e) Crown Jewel Defense

After a hostile takeover, the target may decide to sell a subsidiary or major asset to a neutral third party. If the hostile acquirer view this asset as a essential to the deal, then it may decide to give up the takeover attempt.

e) Pac Man Defense

One of the vintage and bold anti-takeover attempt as part of which, the target management defends itself by making a counter offer to acquire the acquirer itself. However, this strategy will only effective if the target and the acquirer company are of same size and shares similar financial