This document discusses various preventive plans that companies can implement to prevent hostile takeovers. It outlines early warning systems to monitor shareholding and trading patterns for signs of potential takeovers. It also describes several types of poison pills that make companies less attractive targets, including flip over pills, flip in pills, back end plans, net operating loss pills, and voting plans. Additionally, it mentions poison puts that issue debt with put options and corporate charter amendments like classified boards, super majority provisions, and dual class stock structures to make hostile takeovers more difficult.

1. 
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HOSTILE TAKEOVER
PREVENTIVE PLANS

2. 
 1) Early Warning Systems
 2) Poison Pills
 3) Poison Puts
 4) Corporate Charter Amendments
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PREVENTIVE PLANS

3. 
• Monitoring Shareholding Pattern
• Monitoring Trading Pattern
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1. Early Warning Systems

4. 
 Issue of preferred stock or convertible securities to the disadvantage of the acquiring
company. First used by Martin Lipton to defend El Paso Electric against General American
Oil in 1982. Again in 1983 by Martin Lipton to defend Lenox against Brown Foreman in
1983.
A. Flip Over Pill
B. Flip In Pill
C. Back End Plans
D. Shadow Pill / Hidden Pill
E. Net Operating Loss (NOL) Pill
F. Voting Plans
G. Chewable Pill
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2. Poison Pills

5. 
A.Flip over Poison Pills : Rights Issue of shares at very low price
to the existing share holders in 1985.
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2. Poison Pill

6. 
B. Flip in poison pills: Dilutes 100% of shares
of the Target firm
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2. Poison Pill

7. 
C. Back End Plans
Share holders receive a rights dividend, which gives shareholders the ability to
exchange this right along with a share of stock for cash or senior securities that
are equal in value to specific ‘back-end’ price stipulated by the issuer’s board
of directors. These rights may be exercised after the acquirer purchases shares
in excess of a specific percentage of the target’s outstanding shares.
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2. Poison Pill

8. 
D. Shadow Pill / Hidden Pill
• Implemented just before the day of takeover. It is not known to the bidder till the
takeover happens.
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2. Poison Pill

9. 
E. Net Operating Loss (NOL) Pill:
The board links the NOL benefit to percentage of hostile bidder every year.
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2. Poison Pill

10. 
F. Voting Plans: T issues shares without voting. These shareholders get
voting rights only after takeover.
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2. Poison Pill

11. 
G. Chewable Pills: If additional price is paid for the hostile takeover the pills
disappear. If not poison pills get triggered
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2. Poison Pill

12. 
• Issue of huge debt with a put option.
• Put option allows the holders to sell a particular
security to another individual or firm during a
certain time period and for a specific price.
• This creates large cash demand after takeover
making the deal unattractive
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3.Poison put

13. 
1. Articles of Association in India.
2. Rights of share holders redefined in case of acquisition.
3. Staggered terms of board of directors
A. Minimizing the number of directors in a year.
B. Classified directors cannot be removed before term expiry.
C. Mandatory shareholders approval for changes in BOD
4. Super majority provisions: Raising the minimum percentage of votes required (51% – 90%)
5. Fair price provisions to minority share holders.
6. Dual capitalizations: Restructuring of equity into 2 classes of stock with different voting
rights (Ford, Berkshire Hathaway)
7. Golden Shares: Minimum promoters or government holding to rise upto 51%
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4. Corporate Charter Amendment /
Articles of Incorporation Amendment

14. 
Any Questions….
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15. 
Thank
You
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