F423def - FIN 423 - Takeover Defenses Winter 2008 FIN 423...

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FIN 423 - Takeover Defenses Winter 2008 (c) Prof. G. William Schwert, 1998-2008 1 FIN 423 Takeover Defenses Successful takeovers: target stockholders gain 20-35% or more Unsuccessful takeovers: target stockholders gain little if not eventually taken over Question: Why would target management resist a premium offer? Is entrenchment the only answer? Types of Takeover Defenses (1) Charter amendments must be approved by stockholders supermajority: 67% or more of votes necessary to approve control change can be avoided by board ("board out") fai price: supermajority clause can be avoided if fair-price: supermajority clause can be avoided if price is high enough (P/E or P/B)
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FIN 423 - Takeover Defenses Winter 2008 (c) Prof. G. William Schwert, 1998-2008 2 Types of Takeover Defenses (1) Charter amendments staggered board: Senate vs. House only 1/K of board is elected each year, so it takes K years to turnover board completely poison pills: something to kill sharks that are eager to eat rights to buy cheap shares if a control event rights to buy cheap shares if a control event occurs (only hostile deals) Types of Takeover Defenses (2) Legal/Regulatory/Antitrust Defenses state corporation/anti-takeover laws impose rules that are similar to stringent charter amendments for all corporations chartered in that state changing state of incorporation can improve defense
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FIN 423 - Takeover Defenses Winter 2008 (c) Prof. G. William Schwert, 1998-2008 3 Types of Takeover Defenses
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F423def - FIN 423 - Takeover Defenses Winter 2008 FIN 423...

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