Golden Parachutes Case Study

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INTRODUCTION An acquisition takes place when one firm takes over the ownership of another firm. The bidding company is known as the acquiring company and the company which is acquired, by the acquiring company is known as the target company. Acquisitions can either be friendly or hostile. If the target company expresses, that it wants to be acquired, then the acquisition is considered to be friendly. On the other hand, hostile acquisitions don’t have the same agreement from the target company, and the acquiring company will have to purchase a hefty amount of stakes of the target company in order to have a majority stake. Acquisition defenses are the acts of a firm acquiring other firms as a defense against market downturns or possible turnovers.…show more content…
These benefits include cash bonuses, severance pay, stock options etc. If the takeover succeeds, it will be guaranteed that the employee will receive a large sum of compensation. However, this is not a tactic that defends the company from a takeover, but ensures that the existing top management of the company is well taken care of, in case the takeover initiative becomes successful. However, there are arguments for and against golden parachutes, wherein critics argue that the golden parachutes provide benefits to stockholders by making it easier to hire executives, especially those industries which are prone to mergers. Further, it also helps an executive to remain objective about the company during the takeover process. On the other hand, arguments against golden parachutes express that golden parachute costs hold a very small percentage in the takeover costs and therefore, do not affect the outcome. Further, the executives already possess a fiduciary responsibility in the company and therefore, should not need any additional incentives to stay…show more content…
The white knight acquires the corporation on the verge of being taken over by the forces deemed undesirable by the company officials (sometimes referred to as black knights). While the target company does not remain independent, a white knight is viewed as a preferred option to the hostile company completing their takeover. Unlike a hostile turnover, current management typically remains in place in a white knight scenario, and investors receive better compensation for their shares. The white knight is the savior of the company in the midst of a hostile takeover. Often a white knight is sought out by company officials – sometimes to preserve the company’s core business and other times just to negotiate better takeover terms. A white knight can be chosen for several reasons such as friendly intentions, belief of better fit and better synergies, dismissing employees or historical good relationships. However, the most common outcome of a white knight strategy would be that targeted firm eventually gets overtaken by the white knight. This implies that it is not always certain that the targeted company will remain independent but instead slips away

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