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When an acquirer attempts a hostile takeover, boards of directors commonly institute measures to thwart the acquirer’s attempts to gain control of the corporation. Some common measures employed are as follows:
⁃ Shark Repellents – These provisions strengthen the board and make it increasingly difficult for the acquirer to effectuate its plan of replacing current directors.
⁃ Staggered Boards – The election of directors is staggered over a multi-year period. A certain number of directors will be elected at each annual meeting. This will lengthen the amount of time it would take a bidder to gain full control over the board.
⁃ Example: ABC Corp has 9 directors. Only 3 directors come up for election each year. At a bare minimum, it would take two years before a majority shareholder would be able to elect 5 directors and obtain a majority on the board.
⁃ Super-majority Voting – This means that the proposed action requires a higher number of shareholder votes than a simple majority. This will mean that the hostile acquirer must purchase or obtain a proxy from a larger number of shareholders in order to effectuate the takeover.
⁃ Example: ABC Corp amends the articles of organization or bylaws to require an 80% approval of shareholders for any merger, acquisition, or sale of substantially all of the corporation’s assets. This means that an acquirer would have to acquire a much larger share of the outstanding shares in order to effectuate the takeover.