Question

Suggest some ways in which firms have tried to avoid being part of a target takeover.

Answer 1

Some ways in which the firms have tried to avoid being part of a target takeover are as follows :-

1. ) Litigation - Some firms have filed a lawsuit against the acquirer that will require expensive and time consuming legal efforts. Typical grounds for law suit - anti trust and violation of securities law.

2.) Target have decided to sell a subsidiary/major asset which was the main motive of the merger or acquisition.

3.) Some corporates have used restrictions on voting rights which said equity ownership above some threshold level looses voting rights unless approved by board of directors.

4.) Companies have incorporated in states which have restrictive takeover laws.

5. Many corporates have given their shareholders the right to purchase additional shares at discount which causes dilution and hence increasing the cost to potential acquirer.

6.) Target invites a friendly third party to take a minority stake which is enough to block the hostile acquirer from gaining enough shares to complete the merger.

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