#5- Ch. 5- antitakeover measures Flashcards
What are the two types of antitakeover measures?
Preventative and Active
What is the management entrenchment hypothesis?
A theory suggesting that management may resist takeovers to protect their positions rather than in the best interest of shareholders
What is the shareholder interests hypothesis?
A theory indicating that management’s actions should align with maximizing shareholder value
List three common preventative defenses (shark repellants).
- Poison pills
- Corporate charter amendments
- Golden parachutes
What is a poison pill?
A strategy to make a takeover less attractive to the bidder, often through shareholder rights plans
How many companies had poison pills as of late December 1990?
Over 1,500 companies
What percentage of the Fortune 500 companies had poison pills?
56%
What is a formal poison pill also known as?
Shareholder Rights Plan
What is the meaning of the term ‘poison pill’?
The acquirer must deal with negative consequences if they take over the target
What is a shadow pill?
A poison pill that does not need to be pre-existing
Define a chewable pill.
A pill that disappears or is redeemable by shareholders, rather than only by boards
What triggers a typical poison pill?
When a shareholder buys a certain percentage of the company’s shares, such as 20%
Who perfected the poison pill in 1985?
Martin Lipton
What was the first poison pill case?
Brown Forman Distillers v. Lenox Inc.
In the Brown Forman case, what was the offer price per share?
$87 per share
What was the outcome of the Brown Forman and Lenox case?
Brown Forman acquired Lenox but reached a compromise on future direction
What type of poison pill allows shareholders to buy shares at a discount after a triggering event?
Flip Over
What is a flip-in poison pill?
Allows holders to buy shares in the target at a discount after a triggering event
What are supermajority provisions?
Charter amendments requiring more than a majority vote for certain actions, often 80% approval
What is a staggered board?
A board structure where directors are elected in phases, preventing a takeover from succeeding quickly
Define dual capitalization.
The existence of multiple classes of stock, often with one class having super voting rights
What is antigreenmail?
Provisions that prohibit the payment of greenmail
What is greenmail?
Payment of a premium to buy shares from threatening shareholders
What is a white knight?
A friendly buyer preferred over a hostile bidder
What is the purpose of fair price provisions?
To ensure that bidders pay a fair price for shares acquired
What legal case challenged the legality of discriminatory self-tenders?
Boone Pickens v. Unocal
What was the outcome of the Delaware Supreme Court ruling on discriminatory self-tenders?
They were ruled legal until the law was changed to make them illegal
What is a lock-up option?
An option that gives a buyer the right to purchase certain assets at an attractive price
In the Pantry Pride v. Revlon case, what did the Delaware Court rule about lock-up options?
They were deemed illegal as they breached the board’s fiduciary responsibility
What is a standstill agreement?
Payment to a threatening shareholder not to acquire any additional shares
True or False: Poison pills prevent a firm from receiving a tender offer.
False
