- 6 Marks
Question
In a hostile takeover, management and staff of target companies go through a lot of psychological and mental trauma causing management of target companies to resist the takeover. There are certain defensive strategies that are usually used by management of the target company to ward off the predator.
Required:
Explain THREE (3) defensive strategies that can be adapted by the target company to ward off predators. (6 marks)
Answer
Defensive Strategies:
- Convince Shareholders Not to Sell:
Management can persuade the shareholders of the target company not to sell their shares by arguing that the terms offered by the predator are not favorable or acceptable. This can be done by demonstrating the company’s potential for growth and the benefits of remaining independent. - White Knight Defense:
The target company can look for a friendly or more favorable rival bidder (referred to as a “white knight”) who can acquire the company instead of the hostile bidder. This strategy ensures that the company is sold under terms that are more favorable to its management and shareholders. - Golden Parachute:
The target company can negotiate high compensation packages or severance deals for its executives in the event of a takeover. This makes the acquisition more costly and less attractive to the predator. The added expense may discourage the hostile bidder from proceeding with the takeover.
(2 marks for each of the 3 points = 6 marks)
- Tags: Corporate Governance, Defensive strategies, Hostile takeover
- Level: Level 2
- Topic: Mergers and acquisitions
- Series: MAR 2023
- Uploader: Theophilus