Transactional takeover defence is a tactic employed by companies to enhance the difficulty of a potential takeover. This can be achieved through alterations in the company’s financial and operational aspects, such as raising share prices or acquiring costly assets. The objective of these modifications is to dissuade potential buyers and safeguard the company from being acquired without its consent.
Transactional takeover defence is a corporate strategy employed to thwart hostile takeover attempts. It entails implementing financial or operational transactions that hinder a potential bidder from acquiring the company. This can be achieved by boosting the company’s share price, settling with the bidder, or diminishing their potential profit. One method is issuing new shares of stock, which increases the available shares and dilutes the bidder’s ownership, making it more expensive for them to gain a controlling stake. Another approach is acquiring costly assets using the company’s cash reserves, assets that are not crucial to operations but would be burdensome for a potential bidder to obtain. Additionally, a poison pill defence can be employed by creating a financial instrument, like stock options or convertible bonds, that would become prohibitively expensive for the bidder to exercise if they were to acquire a controlling stake. These examples demonstrate how financial and operational transactions can be utilized by a company to impede potential bidders from acquiring it. By elevating the acquisition cost, the company can discourage hostile takeover attempts and retain control over its operations.
A transactional takeover defence is a strategy used by a company to prevent or deter a hostile takeover by another company.
Common tactics include poison pills, golden parachutes, staggered boards, and crown jewel defence.
A poison pill is a defence mechanism that allows existing shareholders to purchase additional shares at a discounted price, diluting the value of the acquiring company’s shares.
A golden parachute is a compensation package offered to key executives in the event of a takeover, providing them with financial security if they lose their jobs.
A staggered board is a board of directors that is elected in staggered terms, making it more difficult for a hostile acquirer to gain control of the board.
A crown jewel defence is a strategy in which a company sells off its most valuable assets to prevent a hostile takeover.
Yes, transactional takeover defences are legal, but they must be implemented in accordance with securities laws and regulations.
Yes, a company can use multiple defences simultaneously to increase its chances of preventing a hostile takeover.
Yes, shareholders can challenge a company’s use of defences if they believe they are not in the best interests of the company or its shareholders.
Yes, a company can use defences to prevent any type of takeover, including friendly takeovers. However, this may not be in the best interests of the company or its shareholders.
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This glossary post was last updated: 27th April 2024.
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