Anti-takeover Defense Mechanism

1. Poison Pill
With a poison pill the company makes itself less attractive to the bidder. It is used by the board of
directors to prevent the acquirer from directly negotiating with the shareholders, instead force the
acquirer to negotiate with the board directly. There are 2 types of poison pills:
Flip in: By the method of flip in the target company allows its present shareholders only to
buy more shares of the company at a lower price than the market level i.e. shares at a
discount.
Flip over: A flip over bill issues rights rather than shares. It issues rights to its existing
shareholders the right to buy the acquiring companys shares at a discounted price in case
the acquisition or merger is completed.

2. Staggered Board
This method of defense usually delays the takeover by a year or two. This is moderately effective
but extremely effective when used with other strategies. When the target company comes to know
about the intentions of the bidding company to acquire it by the method of buying shares and being
the largest shareholder so as to become a board member; it staggers its board into a group of few.
Out of these groups formed only one group may be ousted by means of elections. So for a board of
Anti-takeover
Defense
Strategies
Proactive Reactive
1. Staggered Board
2. Poison Pills
3. Golden Parachute
1. White Knight
2. White Squire
3. Greenmail
4. Crown Jewel
3 groups it would take at least 2 years to replace the board completely and acquire the company.
Hence this strategy is useful not in preventing but delaying the takeover.

3. Green Mail
It is employed when a bidder is looking for short term profit. Green mail is also known as goodbye
kiss wherein a substantial premium is paid for a significant shareholders stock in return to the
agreement that it will not initiate the bidding for a certain period of time. This period may be as
long as 5 years or more.

4. White Knight
The company that attempts the hostile takeover of the target company is known as the Dark Knight.
In this strategy the target company starts looking for a more favorable acquirer known as White
Knight. It requests the White Knight to acquire it in order to protect itself from the Dark Knight.

5. White Squire
The White Knight and White Squire strategies need a third party. White squire is a different
variation of white knight strategy. In this strategy the third party does not take over the majority
shares of the target company but only acquires that much share which is sufficient to prevent the
bidder from acquiring the company.

6. Crown Jewel Defense
Sometimes a hostile takeover is aimed at a particular asset of the target company, in such cases
Crown Jewel defense is effective. In this kind of defense the target company starts selling off its
most valuable assets known as crown jewels to a friendly third party in order to make it less
attractive to the acquirer.

7. Golden Parachute
It is a defensive strategy that aims to make it an expensive takeover deal for the acquirer by issuing
several lump sum payments to the Board of Directors and the management team. The management
team also opposes the takeover in the fear of losing their jobs. This strategy is often used in
combination with the other strategies.