Take Over Defense Mechanisms used by the target company

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2. Periodic or continual measures a
firm's management takes to discourage
unwanted or hostile takeovers.
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3. An antitakeover measure stipulating
that shareholders on the receiving end of
a hostile takeover may buyshares in their own
company at a price below fair market value.
Once the acquisition is complete, the
provision allows these same shareholders to
buy more shares in the new company for
below market value. This forces shareholders
in the acquiring company to
suffer devaluation and dilution of their own
shares.
This is done to discourage hostile
takeovers among the shareholders of the
acquiring companies.
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4. • FLIP IN
Flip-in allows existing shareholders (except the acquirer) to buy more shares at a
discount.
• FLIP OVER
An example of a flip-over occurs when shareholders have the right to
purchase stock of the acquirer on a 2-for-1 basis in any subsequent
merger.
• PENSION PARACHUTE
A firm can use any surplus pension assets to increase pension benefits. A
pension parachute is used to make the firm less attractive to takeover, for
it prevents the acquiring company from using the excess pension assets to
help finance the acquisition.
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5. Raider instructs brokers to buy the shares as
soon as the stock markets open.
The acquirer then builds up a substantial stake
in its target at the current stock market price.
Because this is done early in the morning, the
target firm usually doesn't get informed about
the purchases until it is too late, and the
acquirer now has controlling interest.
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6. • The holding of a
large block of stock of a target
company by an unfriendly
company, with the object of
forcing the target
company to repurchase the
stock at a
substantial premium to prevent
a takeover.
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7. 􀁺 The target company issues a
large number of bonds that
come with the guarantee that
they will be redeemed at a
higher price if the company is
taken over.
􀁺If a company is in danger, the
redemption price of the bonds
expands, kind of like macaroni
in a pot!
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8. • Management threatens en
masse resignation in the event
of a takeover
• Useful if they are a good
management team
• Hostile takeovers often result
in the management being fired
anyway, so the effectiveness of
a people pill defense really
depends on the situation.
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9. • This is a company that gallops
in to make a friendly takeover
offer to a target company that
is facing a hostile takeover
from another party (a “black
knight”).
• The white knight offers the
target firm a way out with a
friendly takeover.
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10. • An antitakeover measure in
which a target
company attempts a hostile
takeover of the acquiring
company. That is, an acquiring
company attempts a hostile
takeover, and, rather than
submitting to the takeover, the
target company attempts the
same thing on the acquiring
company.
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