You run a public company that specializes in providing fruit juice colonics. A major hedge fund has decided that it wants to take your company private and replace its management (meaning you). For obvious reasons, you don't want this to happen.
Your stock is trading at $10 a share. The hedge fund launches a tender offer for your shares at $12 a share. The move means they will pay any of your shareholders $12 for their shares, an attempt to get a large enough stake in the company that they can force the takeover to take place.
Time to fight fire with fire. You launch your own tender offer, buying shares back from your own shareholders to prevent the hedge fund from getting them.
The strategy is called a self-defense tender. It's the corporate equivalent of licking all the cookies so you can eat them all. A self-tender defense consists of the target of a hostile takeover starting its own tender offer, counteracting the tender being run by the firm attempting to achieve the acquisition.
Related or Semi-related Video
Finance: What is a poison pill?4 Views
Finance allah shmoop what is a poison pill O romeo
romeo Wherefore out the ac Well if you can't have
me nobody can have me pill lug dead dead alright
that's poison pill allah romeo and juliet and performed by
your friends here and the corporate version Well it isn't
all that different In fact there are really two flavors
of poison pill flintstones chewable lt's called flip ins which
allow current shareholders to buy a ton more shares at
a big discount toe where their shares are currently trading
flippen like if the shares are at forty bucks each
current shareholder than gets allowed to buy five shares for
ten bucks each for each share that they currently own
and have owned for the last in a year About
that would be a flipping well this flip in process
dilutes the company dramatically making it harder for an outside
takeover soldier to come in and you know just buy
the company that's a flip in the non chewable flintstone
flavor that you have to actually swallow is called ah
flip over which comes is a mandate from the board
allowing current shareholders to buy the shares of the acquirer
After the merger at a big discount it basically destroys
enormous value in the combined company making It tastes like
a bitter moth to ah hungry bat so you know
he spits it out The basic idea in these poison
pill defense strategies is to deal with hostile takeovers And
a lot of those came during the junk bond era
in the nineteen eighties when cheap high risk capital was
liquid Lee easily available almost anywhere and companies felt vulnerable
to short term quick buck wall street sharpies who looked
great in a dark suit and usually had awesome hair
So yeah people for details carefully watch wall street the
first one the good one the one with michael douglas
when he still had hair and what you don't really 00:01:54.212 --> [endTime] hear there is he said Shmoop is good yeah
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