Memo: Hostile Takeover Defense Strategies

To: Senior Management
From: Finance Manager
Subject: Actions to Prevent a Hostile Takeover Bid

In response to concerns regarding the possibility of a hostile takeover, there are several strategies that a target company can adopt to defend against such attempts. Below are five key actions:

1. White Knight
   • This involves finding a friendly third-party company (a “white knight”) that offers a more favorable acquisition deal to outbid the hostile company. This strategy allows the target company to avoid falling into the hands of the hostile bidder.
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2. Shark Repellent
   • Amending the company’s charter or bylaws to make it difficult for the acquiring company to complete a takeover. This can include raising the threshold for shareholder approval or implementing supermajority voting requirements.
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3. Pac-Man Defense
   • In this defense, the target company turns the tables by attempting to acquire the hostile company that is attempting the takeover. This often deters the hostile bidder, as it becomes the target of the acquisition instead.
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4. Golden Parachutes
   • This strategy involves providing the company’s top executives with generous severance packages that are triggered in the event of a takeover. This increases the cost of the acquisition, making it less attractive for the hostile bidder.
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5. Poison Pill
   • A tactic where the target company issues new shares to existing shareholders at a discount, making it more difficult and expensive for the acquiring company to buy a controlling stake in the business. This dilutes the ownership of the hostile bidder.
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