Become a Financial Modeling & Valuation Analyst (FMVA)®. Enroll today to advance your career!
Login to your new FMVA dashboard today!

Post-Offer Defense Mechanism

Strategies that can be employed by a target company in a hostile takeover after receiving a takeover offer

What is Post-offer Defense Mechanism?

Post-offer defense mechanism is a term used to label a broad group of strategies that can be employed by a target company in a hostile takeover after receiving a takeover threat. Unlike pre-offer defense strategies that define the preventive steps, post-offer defenses are executed when there is a real threat of a hostile takeover.

 

Post-Offer Defense Mechanism

 

The goals of the post-offer defense strategies are to delay a takeover in order to develop more efficient defensive mechanisms, make a target company less attractive to a bidder, or eliminate any acquisition possibility.

 

Types of Post-offer Defense Mechanisms

Examples of post-offer defense mechanisms include:

 

1. Just say no defense

in certain cases, when the management of a target company opposes the takeover deal, the managers may convince the members of the company’s board of directors that the upcoming deal will not be beneficial to the company’s shareholders.

 

2. Litigation

Another example of a post-offer defense mechanism. When a target company receives an offer, it can start a litigation process against the corporate raider. The success of the process depends on factors such as anti-competition laws in the jurisdiction or the presence of sufficient evidence. Even with the chances of success are low, the litigation process can still be employed to delay a potential hostile takeover. During this time, a target company may develop a more thorough defensive strategy.

 

3. Greenmail (Greenmailing)

Greenmail is a practice when a corporate raider’s already acquired a substantial number of shares, but a target company buys back shares at a significant premium.

 

4. Crown jewel defense

The main purpose of the crown jewel defense is to make a target company less attractive to a potential acquirer. Essentially, in this takeover defense strategy, a target company sells off its most valuable assets to a third party or spins off into an independent entity.

 

5. Pac-Man defense

In Pac-Man defense, a target company is willing to flip over the situation by attempting to purchase its potential acquirer. The Pac-Man defense is rarely used as the nature of the strategy implies that both companies are of equal size. For example, a small target company cannot use this strategy because it will simply not have enough funds to acquire its raider.

 

6. White knight defense

When a target company receives a takeover threat, it may invite its strategic partner called a white knight to purchase a controlling interest in the company. In other words, instead of a merger with a corporate raider, the target company merges with its strategic partner.

Generally, the white knight defense is the last mechanism to avoid a hostile takeover. Additionally, it may create benefits to the shareholders of a target company through synergies between the companies. However, it is not always the case, as the synergies do not always materialize.

 

7. White squire defense

The white squire defense is a variation of the white knight defense. In the defensive strategy, a target company asks its strategic partner called a white squire to obtain a minority interest in a company. Although the interest is not sufficient to control a company, it is adequate to fend off a corporate raider. Similar to the white knight defense, the white squire strategy is the last defense that can help a target company prevent a hostile takeover.

 

More Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Black Knight
  • Friendly Takeover
  • Revlon Rule
  • M&A Glossary

M&A Modeling Course

Learn how to model mergers and acquisitions in CFI’s M&A Modeling Course!

Build an M&A model from scratch the easy way with step-by-step instruction.

This course will teach you how to model synergies, accretion/dilution, pro forma metrics and a complete M&A model. View the course now!