Anti-takeover measures

Anti-takeover measures refer to a set of strategies and tactics implemented by a company’s management or board of directors to protect the company from hostile takeover attempts. These measures are designed to deter or impede the acquisition of a company by an unwanted acquirer, thereby preserving the independence and control of the target company.

Types of Anti-takeover Measures

There are several types of anti-takeover measures that companies can employ:

1. Poison Pills

Poison pills, also known as shareholder rights plans, are one of the most common anti-takeover measures. They are designed to make the target company less attractive to potential acquirers by diluting the ownership of existing shareholders or granting them certain rights. This can be done by issuing additional shares to existing shareholders or providing them with the right to purchase shares at a discounted price.

2. Staggered Board

A staggered board, also known as a classified board, is a governance structure where the board of directors is divided into multiple classes, with each class serving a different term. This makes it difficult for an acquirer to gain control of the board in a single attempt, as they would need to win multiple elections over a period of time.

3. Golden Parachutes

Golden parachutes are contractual agreements between a company and its top executives that provide them with significant financial benefits in the event of a change in control or termination of employment following a takeover. These benefits act as a deterrent to potential acquirers, as they increase the cost of acquiring the company and may discourage hostile takeover attempts.

4. Supermajority Voting Provisions

Supermajority voting provisions require a higher percentage of shareholder votes (typically two-thirds or three-fourths) to approve certain actions, such as a merger or acquisition. By increasing the voting threshold, these provisions make it more difficult for an acquirer to gain the necessary support from shareholders to complete a takeover.

5. Dual-Class Share Structures

Dual-class share structures involve the issuance of different classes of shares, with each class having different voting rights. Typically, the founders or key insiders hold shares with superior voting rights, allowing them to maintain control of the company even if they own a minority of the economic interests. This structure can deter potential acquirers who may be unwilling to acquire a company with limited voting rights.

Justification for Anti-takeover Measures

Companies implement anti-takeover measures to protect their long-term interests and ensure that decisions regarding the company’s future are made in the best interest of shareholders. These measures are often justified by the management as a means to preserve the company’s strategic direction, protect employees’ jobs, and maintain the value of the company’s assets.

However, anti-takeover measures can also be seen as entrenching management and limiting shareholder rights. Critics argue that these measures can discourage potential acquirers who may have the ability to improve the company’s performance or unlock shareholder value through a takeover.

Ultimately, the use of anti-takeover measures is a complex and controversial topic, with proponents and opponents offering different perspectives on their effectiveness and impact on corporate governance.

Keywords: takeover, company, measures, rights, voting, control, shareholder, potential, acquirers