14.10 : Defensive Tactics

Defensive tactics are strategies companies employ to resist unwanted takeovers and protect their autonomy. These methods deter hostile bidders or improve acquisition terms, enabling companies to maintain control over their direction. Common strategies include the Poison Pill, Shark Repellent, Golden Parachute, and White Knight.

The Poison Pill allows shareholders to purchase additional stock at a discount, diluting the acquirer’s stake and making the takeover more expensive. For instance, Twitter adopted this tactic in 2022 to counter Elon Musk’s acquisition attempt, although it ultimately agreed to the deal. This highlights that such measures can delay or complicate takeovers but may not always prevent them.

Shark Repellent involves procedural changes like requiring a supermajority vote for mergers and creating barriers that make takeovers harder to execute. By focusing on governance, this tactic complements others like the Poison Pill, which targets shareholder actions.

The Golden Parachute provides lucrative compensation packages to executives if a takeover occurs, including severance pay, bonuses, or stock options. This increases the financial burden on acquirers, deterring bids. However, it can also stabilize leadership during uncertain times, though it sometimes raises concerns about prioritizing executive interests over shareholders.

The White Knight strategy involves seeking a friendly acquirer to buy the company on favorable terms, protecting it from a hostile bidder. This allows the company to retain some influence over its future.

While these tactics safeguard corporate independence, they can also spark debates about their impact on shareholder rights and long-term value. Companies must navigate these dynamics carefully.