Incentivizing Acquirer - Hostile Takeover Defense
Examples of Compensating Acquirer as a Defense to a Hostile Takeover
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What is Buying Off the Acquirer in a Hostile Takeover?
Often the corporation will attempt to provide benefits to the acquirer that will incentivize it to give up its efforts. These efforts are generally not in the best interest of existing shareholders and can lead to litigation.
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What is a Target Share Repurchase Plan (Greenmail)?
In some cases the corporation will attempt to repurchase of block of shares held by an intended acquirer. The acquirer heavily profits from the repurchase. This effectively eliminates the acquirer from continuing with the acquisition plan.
Example: I purchase a large block of shares in an effort to acquiring a controlling interest in the corporation. The corporation repurchases the shares at a 25% premium above my purchase price. I sell the shares and abandon my share acquisition efforts.
What are Standstill Agreements?
The board may offer to pay an acquirer to halt the acquisition of additional shares for a state period of time. The provision may also require the acquirer to vote its shares for the current board of directors. This will give the corporation time to implement additional anti-takeover measures.
Example: ABC Corp pays Karl to cease acquiring additional shares in ABC Corp for 12 months. This allows the directors the opportunity to propose changes to the governing documents to implement additional anti-takeover measures. Often these measures require existing stockholder approval, so the standstill agreement will require Karl to vote for the implementation of these provisions.