When corporations are trying to discourage outside groups or companies from making takeover bids, they often use defensive maneuvers called “shark repellents.” Yet before any steps can be taken to discourage a bidder, corporations must normally get them approved by more than half of their shareholders.
Here are some activities (or prior arrangements) frequently used to repel hostile takeovers.
Useful Defensive Maneuvers to Consider Before an Offer Is Made
The articles of incorporation can be amended. This can be done so that it will take more than a mere majority of shareholders to approve any new merger or large sale of assets;
You can make a preventive move before any specific attempt is anticipated. Some corporations purposefully decide while drafting their bylaws or articles of incorporation to have their board of directors elected over a staggered time period. If this is already in place, it can help prevent an outside bidder from gaining quick control of a company by simply trying to buy up the majority of the shares available;
Specifically amending the corporate charter to forbid the payment of “greenmail.” (As you may already know, “greenmail” refers to a target corporation having to buy back stock sold during an attempted takeover bid (at a higher share price) in order to retain control of a corporation;
Creating a new class of stock by amending the corporate charter (to indicate that each class of stock must approve any asset sale or merger). The corporation can then just offer this new class of stocks to a special core group of individuals – like those who started the corporation (or the family that founded it) – ensuring that no bidder can then obtain the approval of those holding stock in this new class of shares;
“Poison pill” plans can be made. Other types of management maneuvers (such as using “killerbees”) can be created and approved (both before and after a bid is made) to carefully control buyback prices and other issues – thereby greatly discouraging the bidder(s).
Potentially Useful Defensive Maneuvers After an Offer Is Made
In exchange for a “standstill” agreement, a target corporation can agree to pay “greenmail” (an above-market share price) to a bidder. The “standstill agreement” will include a provision stating that the bidder will not return with a new bid for a set, specific period of years;
Stocks can be sold to a friendly party who agrees to not sell them to the hostile takeover bidder;
Corporate restructuring can be approved – making the purchase of the company far less attractive to the bidder to buy;
You can seek out a “white knight.” The target corporation can try and quickly locate a more attractive bidder to buy the company;
Lawsuits can be filed as stalling tactics to dissuade the bidder. There are many federal security law issues and state -law fiduciary grounds that can support a lengthy lawsuit if sufficient evidence of alleged wrongdoing by a bidder can be produced to a court, thereby requiring a trial – or at least a lengthy investigation.
To obtain help with handling all of your Georgia business planning needs, please contact Shane Smith Law today. You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (980) 246-2656.