Green mail defense mechanisms
A fascinating topic! Greenmail is a type of corporate defense mechanism that involves a hostile takeover bid being withdrawn in exchange for a significant payment to the target company's shareholders. Here are some common greenmail defense mechanisms:
- Cash Tender Offer: The target company's board of directors negotiates a cash tender offer with the acquirer, where the acquirer agrees to pay a premium to acquire a certain percentage of the target company's outstanding shares.
- Staggered Board: The target company's board of directors adopts a staggered board structure, where only a portion of the board is up for election each year. This makes it more difficult for an acquirer to gain control of the board.
- Poison Pill: The target company adopts a poison pill, which is a defensive measure that makes it more difficult or expensive for an acquirer to acquire the company. This can include provisions such as a rights offering or a change in the company's capital structure.
- White Knight: The target company seeks out a "white knight" – a friendly acquirer that is willing to acquire the company and prevent a hostile takeover.
- Proxy Contest: The target company's board of directors engages in a proxy contest, where they solicit votes from shareholders to support their own slate of directors rather than the acquirer's nominees.
- Share Repurchase: The target company repurchases its own shares, reducing the number of outstanding shares and making it more difficult for an acquirer to gain control.
- Merger Agreement: The target company negotiates a merger agreement with the acquirer, which includes provisions that make it more difficult for the acquirer to acquire the company.
- Independent Committee: The target company establishes an independent committee of its board of directors to review the acquirer's proposal and negotiate a deal.
- Shareholder Rights Plan: The target company adopts a shareholder rights plan, which gives shareholders the right to purchase additional shares at a discounted price if an acquirer acquires a certain percentage of the company's outstanding shares.
- Litigation: The target company engages in litigation to challenge the acquirer's proposal or to prevent the acquisition from occurring.
These greenmail defense mechanisms are designed to protect the target company's shareholders and prevent a hostile takeover. However, they can also be used to delay or prevent a legitimate acquisition that could benefit the company and its shareholders.