Defense Tools
What is a poison pill?
Shareholders get rights to buy stock at a deep discount to dilute a raider
Who is Michael Jensen?
The scholar who argued that LBOs create superior governance for mature industries
How do you call a board where only one-third of directors are elected each year
Staggered board
What is the market for corporate control?
The market where raiders replace underperforming managers
What are golden parachutes?
Lucrative payout packages for executives who are ousted during a takeover
What is debt (or leverage)?
The primary financial "hard" incentive used in an LBO to prevent managerial waste
A charter rule requiring 80% or more of votes to approve a merger is called...
Supermajority rule
Monitoring that focuses on measuring value without intervening in management is called...
passive monitoring
What is recapitalization?
Changing the firm's capital structure, often by adding debt, to ward off a bidder
The specific type of industry—possessing strong cash flows—best suited for LBOs is a ...
...mature industry
What are dual-class shares?
Giving certain shares (often held by founders) more votes than others
What monitoring involves interfering with management to increase claim value?
Active monitoring
What is greenmail?
Buying back a raider's block of stock at a premium to make them go away
What is the problem called where when managers refuse to return excess cash to investors?
The free-cash-flow problem
A clause requiring a raider to pay the same price to all shareholders is known as...
...a fair price clause
What is an MBO (Management Buyout)?
A specific type of LBO where the firm's own management acts as the buyer
How do you call a friendly acquirer invited by a target company to rescue it from a hostile bid?
A white knight
What is entrenchment?
Management's use of strategies to secure their position and resist being fired
A strategy of selling off the firm's most desirable assets to stop a bid is known as...
...a scorched earth policy
The initial small percentage of a target's stock purchased by a raider is known as...
a toehold