Takeover defenses (Pre-Offer)

Anti-Greenmail

Greenmail refers to an activist investor taking a minority position in the stock of a particular firm and subsequently demanding that their shares be repurchased at a premium with a thinly disguised threat that failure to do so could result in the investor taking control of the firm and subsequently removing management and board members. Anti-greenmail provisions prevent management from buying back such shares at a premium.

Super voting stock

Issuing stocks with greatest voting rights (10 - 100 in US). Once issued, firms offer to exchange such shares for those offering dividends. Most shareholders exchange their super-voting shares. Managers and family members often retain super-voting shares which results in a concentration of voting power.

Reincorporation

Reincorporation in a different state where the laws are more favorable for implementing takeover defenses.

Golden parachutes

highly lucrative termination paid to senior executives dismissed following a takeover. When exercised they raise the overall cost of the transaction.

Fair price provisions

minority to be paid at least fair market price (historical multiples of the company's earning or a specific price equal to the maximum price paid by the bidder when acquiring the target)

Shark repellants

specific types of takeover defenses achieved by amending either a corporate charter or the corporation bylaws. Their main role is to strengthen the target board's defenses by slowing down the takeover process and making it more expensive. There are many variations of shark repellants:

Poison pills

to raise the cost of takeover : Poison pills are rights offerings issued as dividends to shareholders that may be exercised if an unwanted suitor purchases an amount of stock in excess of a predetermined percentage of the firm's outstanding shares. Once approved by the board, each right entitles the holder, excluding those held by the acquirer, if the threshold is triggered, to purchase common or some fraction of participating preferred stock of the target firm (a flip-in pill) or shares of the acquirer (a flip-over pill) at a preset exercise price. The flip-in poison pill can discourage an unwanted investor because it dilutes their ownership interest in the firm as well as the value of their investment in the target firm.