In today's
world, where
Microsoft's actions are
commonplace, many
corporations face the
danger of being taken over. However, there are many
defenses to this
possibility. Here are some
terms and their
definitions that describe what corporations try to do to
prevent a
takeover:
Crown Jewel: The corporation sells off the company's most
valuable asset to a
third party, thus making the company
less attractive.
Golden Parachute: I'm sure most of you have heard of this and know what it is. When a company is taken over, their
top management usually will change. Knowing this, the company might
establish special
termination or
retirement benefits that would have to be paid to top management if they are "retired." The "
parachute" is for the forced "bailing out" of the company.
Greenmail: This is for takeovers attempted through a
gradual accumulation of target stock rather than a direct
buyout. The targeted company may pay a price that's above the
market price for their own stock that had been acquired by the corporation taking over. The target company tries to force the acquiring company to buy back the accumulated shares at a
premium price. This concept is similar to
blackmail.
Lobster Trap: This is to catch the "big
lobsters," but let the smaller ones get away. Holders of
convertible securities (bonds or stock that are convertible to common shares) would be prohibited from converting the securities into
common shares if the shareholders already own, or would own after the conversion,
10% or more of the voting shares of
stock.
Pac-Man: This is like when Pac-Man eats that
power pill and chases after the
ghosts that were originally after him. The target company tries its own takeover of the
acquiring company.
Poison Pill: This is where the
target corporation allows its stockholders the right to
buy additional shares at lower-than-market prices when there is a takeover
attempt. This, in effect, makes the takeover an
undesirable and expensive
venture for the acquiring company.
Scorched Earth: The target company sells off
assets or divisions, or it takes out loans that ir will agree to repay if there is a takeover attempt. This makes the target company
less financially attractive to the acquiring corporation.
Shark Repellant: The target company will change its
articles of incorporation or
bylaws to make the takeover particularly
difficult, sometimes by making the requirement for the number of shareholders approving the firm's combination rather
large.
White Knight: This is a
tactic where the target company solicits a
merger with a third party, thereby making a better tender offer to the target's shareholders. The third
party is the "
white knight."