A defended takeover bid refers to an acquisition attempt where the directors of the target company oppose the bid, initiating various defensive strategies to prevent the takeover. This article delves into the historical context, types, key strategies, and important considerations regarding defended takeover bids.
Historical Context
The concept of defended takeover bids became prominent in the latter half of the 20th century with the surge of corporate mergers and acquisitions. Notable historical instances include the 1974 battle for F. Ross Johnson’s RJR Nabisco, which was later immortalized in the book “Barbarians at the Gate.”
Types of Defenses
- Poison Pill: Also known as a shareholder rights plan, it allows existing shareholders to purchase additional shares at a discount, diluting the acquirer’s stake.
- White Knight: The target company seeks a more favorable company to take over, preventing the original hostile takeover.
- Crown Jewel Defense: Selling the most valuable assets to make the target company less attractive.
- Golden Parachutes: Offering lucrative benefits to top executives if they are ousted due to a takeover.
- Pac-Man Defense: The target company attempts to acquire the company that made the hostile bid.
- Litigation: Using legal action to delay or stop the takeover process.
Key Events
- 1974: RJR Nabisco takeover, a significant event that showcased multiple defensive strategies.
- 1982: Martin Marietta versus Bendix Corporation, notable for the use of litigation and the Pac-Man Defense.
Strategies in Detail
Poison Pill Strategy
This strategy involves creating new shares or offering existing shareholders rights to buy additional shares at a discount in the event of a takeover, thus diluting the value of shares held by the acquirer.
graph TD;
A[Company A (Acquirer)] --> B[Company B (Target)];
B --> C{Directors of B adopt Poison Pill};
C --> D[Existing Shareholders buy discounted shares];
D --> E{Share dilution};
E --> F[Acquirer stake diminishes];
White Knight Strategy
The target company seeks a friendly company to make a better offer, effectively rescuing them from the hostile bid.
graph TD;
A[Company A (Acquirer)] --> B[Company B (Target)];
B --> C[White Knight identified];
C --> D{Friendly takeover by White Knight};
D --> E[Hostile Bid averted];
Importance and Applicability
Defended takeover bids are critical for maintaining the autonomy and strategic vision of a company. They protect against undervalued acquisitions, hostile intentions, and ensure that any acquisition aligns with the best interests of stakeholders.
Examples
- RJR Nabisco (1989): Employed several defensive tactics but was eventually acquired.
- Netflix’s defense against Carl Icahn (2012): Netflix implemented a poison pill strategy to prevent hostile takeovers.
Considerations
- Legal implications: Defensive measures must comply with corporate governance laws.
- Shareholder interests: Balancing short-term financial gains against long-term strategic goals.
- Market perception: Defensive tactics can impact the company’s stock price and reputation.
Related Terms
- Hostile Takeover: A takeover bid opposed by the target company’s directors.
- Friendly Takeover: An acquisition agreed upon by both companies.
- Leveraged Buyout (LBO): Acquiring a company using a significant amount of borrowed money.
Comparisons
- Defended vs. Hostile Takeovers: While both involve resistance from the target, defended takeovers include formal strategies to fend off the acquisition.
Interesting Facts
- Crown Jewel Defense often involves selling off the most profitable part of the business, which may not always be in the long-term interest of the shareholders.
Inspirational Stories
- The resilience of Netflix against Carl Icahn in 2012 is often cited as a classic example of a company successfully defending its strategic vision.
Famous Quotes
“A good company is always subject to takeover bids. A great company knows how to defend itself.” – Anonymous
Proverbs and Clichés
- “Better the devil you know than the devil you don’t”: Emphasizes the preference for known adversaries over unknown risks.
Expressions, Jargon, and Slang
- [“Greenmail”](https://financedictionarypro.com/definitions/g/greenmail/ ““Greenmail””): The practice of purchasing enough shares to threaten a takeover, forcing the target company to buy them back at a premium.
FAQs
Q: What is the primary purpose of a defended takeover bid?
Q: Are all defensive measures legal?
References
- Gaughan, Patrick A. Mergers, Acquisitions, and Corporate Restructurings. Wiley, 2020.
- Burrough, Bryan, and John Helyar. Barbarians at the Gate: The Fall of RJR Nabisco. HarperCollins, 1990.
Summary
Defended takeover bids represent a critical aspect of corporate strategy, showcasing the lengths to which companies will go to preserve their independence. Understanding these strategies is vital for corporate managers, investors, and stakeholders to navigate the complexities of modern business landscapes.
This article provides an in-depth analysis and aims to educate readers on the intricacies of defended takeover bids while ensuring a comprehensive understanding of their applications and implications.
