What is a Poison Put? A poison put is a defense strategy against a hostile takeover. It involves the issuance of bonds by the target company that can be bought back prior to their maturity date. The poison put defense is a pre-offer defense mechanism and can be considered a variant of the poison pill…
What is an Arm’s Length Transaction? An arm’s length transaction, also known as the arm’s length principle (ALP), indicates a transaction between two independent parties in which both parties are acting in their own self-interest. Both buyer and seller are independent, possess equal bargaining power, are not under pressure or duress from the opposing party,…
What is Book Value vs Fair Value? In accounting and finance, it is important to understand the differences between book value vs fair value. Both concepts are used in the valuation of an asset, but they refer to different aspects of an asset’s value. In this article, we will discuss book value vs fair value in…
What is a Scorched Earth Policy? In finance, a scorched earth policy is a tactic that a company can use to prevent a hostile takeover. Essentially what happens is that a company targeted for takeover does everything it can reasonably do to make itself unattractive, hopefully discouraging the potential acquirer from continuing the takeover attempt….
What is a Godfather Offer? A Godfather offer is essentially an offer that is so ridiculously favorable, that to refuse it would be a dereliction of financial responsibility. It most often occurs in the context of mergers and acquisitions, and refers to an offer made by one company to purchase or take over another company….
What is a Dawn Raid? A dawn raid refers to the sudden sweeping purchase by a potential acquirer of a substantial number of a target company’s shares the moment the market opens (“dawn”). A dawn raid is typically undertaken by a potential acquiring company in the context of a hostile takeover attempt. Hostile…
What are American vs European vs Bermudan Options? There are different types of options that differ in terms of their exercise restrictions. The three basic types are American, European, and Bermudan options. Let’s explore American vs European vs Bermudan options to find out how they are different from one another. Options are exactly what they…
What is a Restrictive Covenant? A restrictive covenant is a promise included in a legal agreement that prevents one party to the contract from taking a specific action. When a party enters into a restrictive covenant, he/she agrees to refrain from doing something or from using a property in a certain way that is restricted…
What are Open-end vs Closed-end Mutual Funds? Many investors consider open-end vs. closed-end mutual funds similar due to both mutual funds allowing them an inexpensive way to pool capital together and invest in a diversified, professionally managed portfolio of securities. However, it is key to realize that there are substantial differences that affect the returns…
What is a Takeover Bid? A takeover bid refers to the purchase of a company (the target) by another company (the acquirer). With a takeover bid, the acquirer typically offers cash, stock, or a mix of both, “bidding” a specific price to purchase the target company for. Types of Takeover Bids The four different types…
