Anti-Takeover Measure

Anti-takeover measures are actions taken on a continual or sporadic basis by a firm's management in order to prevent or deter unwanted takeovers.

Companies have many different options for preventing takeovers. Continuous provisions include stipulations in the corporate covenant and issues of participating preferred stock. The sporadic measures include the so-called Pac-Man Defense, which calls for a retaliatory takeover bid aimed at the company attempting to make the acquisition, and the so-called Macaroni Defense, which involves the issuing of numerous bonds that must be bought at an exorbitant premium in the event of an acquisition of the company.

The management of a company may want to maintain the independence of the company, particularly in industries where consolidation is escalating. Further, the management may not believe potential acquirers will properly value the company in a hostile takeover.

By introducing such obstacles, anti-takeover measures can give the existing leadership of a company a way to defend their control from hostile bids. The Pac-Man Defense turns the tables on the potential buyer, while the Macaroni Defense aims to make the company too expensive to purchase. Other means that may be put in place to deter takeover attempts can include the introduction of a fair price amendment into the bylaws of the company. That would require any buyer to pay what the bylaws determine to be a fair price. This may be derived from historic prices for the company’s shares and include a required payout to all shareholders at that price. Such an amendment is yet another way to make a hostile takeover too expensive for the buyer.

There are also procedural approaches to putting anti-takeover measures in place. This can include setting up staggered elections for seats among the board of directors. This tactic tends to make it more difficult for a bidder to get directors of their choosing elected to the board to advocate for the takeover. Likewise, the company could choose to increase the number of shareholder votes required to affirm any deal, further complicating any takeover efforts. A poison pill tactic could also be employed, which would allow shareholders to buy more stock at discount either to make it more expensive to acquire the company. A poison pill could also be structured to let shareholders in the company to be acquired purchase shares at a discount in the acquiring company in order to dilute the shares of those shareholders, thus making the takeover attempt less attractive.