Hostile takeovers pose a significant threat to businesses, especially smaller companies with low institutional ownership. These firms often lack the money to fight off aggressive bids. Your company might draw unwanted attention from potential buyers if it has high cash reserves or is undervalued. Companies with weak anti-takeover measures or poor performance face a higher risk.
Legal defenses
You can use several legal tricks to protect your company from a hostile takeover. Here are eight ways:
- Poison Pill: This defense lets current shareholders buy more shares at a lower price. This action weakens the potential buyer’s share and makes the takeover more costly.
- Golden Parachute: Offering significant benefits to key leaders if they lose their jobs after a takeover can scare off potential buyers due to high costs.
- Greenmail: This means buying back shares from the hostile bidder at a high price, essentially paying them off to go away.
- Staggered Board: Spacing out board members’ terms makes it harder for buyers to gain control quickly. Only some of the board is up for vote each year.
- White Knight: Finding a friendlier company to buy your business can help avoid a hostile takeover.
- Crown Jewel Defense: Selling your best assets can make your company less attractive to the hostile bidder.
- Pac-Man Defense: Trying to buy the hostile bidder can be a bold but helpful strategy.
- Standstill Agreement: A deal in which the hostile bidder agrees not to buy more shares for a set time can give you a break.
Understanding these strategies can help you ready your business to fight off potential takeover tries.
Importance of legal help
Using these defenses requires careful legal and financial planning. Hiring skilled lawyers is crucial in handling complex issues and following Nevada’s business laws. Lawyers can help draft needed papers, negotiate terms and give advice that fits your situation.