What are Defended Takeovers?

A defended takeover happens when a company’s leaders try to stop another company from buying them. The company leaders fight back because they don’t want to lose control of their business.

How Defended Takeovers Work

The target company’s board members and managers use different ways to stop the unwanted buyer. They tell their shareholders why the offer price isn’t high enough. They also explain how the company can make more money on its own.

Defense Methods

Poison Pills

Companies create special rules that make it very expensive for unwanted buyers to take over. These rules let current shareholders buy more shares at lower prices, which makes the takeover cost too much for the buyer.

White Knights

The target company finds a friendly company to buy them instead. This friendly buyer steps in to save them from the unwanted one. Both companies agree on better terms that help everyone.

Pac-Man Defense

The target company turns around and tries to buy the company that wants to buy them. This surprises the unwanted buyer and makes them back away.

Crown Jewels Defense

The company sells its best parts or signs them away to other companies. This makes the whole company less attractive to buy. The buyer wanted these valuable parts, but now they can’t have them.

Golden Parachutes

Leaders get big payment promises if someone takes over the company and fires them. This makes the takeover more expensive because the buyer must pay these promises.

Legal Issues

Courts watch these fights carefully. They make sure company leaders protect shareholder interests. Leaders must show they aren’t just trying to keep their jobs. They need good reasons to fight against the takeover.

Real Examples

Many famous companies have fought off takeovers. In 1989, Time Inc. didn’t want Paramount to buy them. They used many defenses and joined with Warner instead. This created Time Warner, which became a bigger media company.

A more recent case happened when Papa John’s pizza company fought off an unwanted buyer in 2018. They used a poison pill defense to stay independent.

Shareholder Rights

Shareholders own the company and get to vote on big decisions. They can choose to accept or reject takeover offers. Company leaders must explain why they think fighting the takeover helps shareholders make more money.

Market Effects

Defended takeovers change stock prices. The target company’s shares often go up when someone tries to buy them. The shares might go down if the defense works and the buyer goes away. These price changes affect many investors.

Cost Issues

Fighting takeovers costs lots of money. Companies pay lawyers and banks to help them. They might have to borrow money or sell things quickly. All these costs affect the company’s value.

Management Changes

Leaders might leave after a takeover fight. New people come in to run things differently. The company culture often changes, whether the takeover works or not.

Time Problems

Takeover fights take months or years. During this time, the company has trouble making plans. Workers worry about their jobs. Customers might go elsewhere because they don’t know what will happen.

Business Results

Companies fighting takeovers often change how they work. They might close some parts of the business. They could fire workers or sell buildings. These changes try to show they can make money without the buyer.

International Rules

Different countries have different rules about takeovers. American companies use more defenses than British ones. Japanese companies rarely face takeovers because their business culture works differently.

Modern Trends

Today’s takeover fights use social media and news stories. Companies tell their side through many channels. They hire public relations experts to help win support.

Technology Effects

New computer systems help companies track shareholder votes. Online trading makes stock prices change faster during takeover fights. Technology helps spread information quickly to everyone involved.

Expert Help

Companies hire many helpers during takeover fights. Investment banks give money advice. Lawyers handle legal papers. Public relations firms talk to news people. These experts charge high fees for their help.

Small Company Issues

Small companies have harder times fighting takeovers. They have less money for defenses. Big companies can more easily fight off unwanted buyers.

Industry Changes

Some business types see more takeover fights than others. Technology companies often face takeovers because bigger ones want their new ideas. Old industries like manufacturing see fewer fights.

Worker Concerns

Employees worry during takeover fights. They don’t know if they’ll keep their jobs. This makes them work less well and some leave for other jobs. Companies must keep workers happy during these times.

Customer Effects

Customers sometimes stop buying during takeover fights. They worry the company won’t stay around or might change. Companies must keep serving customers well while fighting the takeover.

Success Rates

Most defended takeovers don’t work. The unwanted buyer usually gives up or the target company stays independent. Sometimes the target finds a different friendly buyer.

Market Watch

Other companies watch takeover fights closely. They learn which defenses work best. This helps them plan for their own possible takeover fights.

Money Markets

Banks change how they lend money during takeover fights. They worry about getting paid back. This makes it harder for companies to borrow money when fighting takeovers.

Board Duties

Company board members must carefully think about takeover offers. They can’t just say no without good reasons. They must show they’re helping shareholders make money.

Defense Costs

Fighting off buyers costs lots of money. Companies pay millions to lawyers and banks. These costs hurt the company’s value even if they win the fight.

Long-term Effects

Companies that fight off takeovers often change forever. They might become bigger through buying other companies. They could split into smaller companies. Many end up selling themselves later anyway.

Learning Points

Each takeover fight teaches new lessons. Companies learn better ways to defend themselves. Buyers learn how to make better offers that might work.

The world of defended takeovers keeps changing. Companies face new challenges as business rules and technology change. They must balance many different needs while fighting off unwanted buyers.