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Show Stopper

An event or situation that causes production or progress to cease

What is a Show Stopper?

As is true in the entertainment industry, a show stopper in the business/financial world is an event or situation that causes production or progress to cease. Forward movement, success, or completion of a task, assignment, or project are hindered because of a show-stopping event or circumstance.

 

Show Stopper

 

Show Stoppers in Hostile Takeover Situations

One of the common examples of a show stopper is some type of legal or strategic action used during hostile takeovers. It usually involves action on the part of the company targeted for a takeover. Here are two good examples of show stoppers:

  • Scorched earth policy
  • Other shark repellent systems

 

The scorched earth policy can be a show stopper from both sides of the table. It occurs when the target company does whatever it can to make itself less desirable. This includes selling off valuable assets and making agreements to settle significant debts once the takeover has occurred. Such a move often stops the entire takeover process.

However, it can also be a show stopper for the target company. In many cases, the company – in an attempt to be less desirable – decreases its own value to the point that it can’t recover in the event that the takeover doesn’t go through.

Shark repellent systems – which include the scorched earth policy – involve other forms of anti-takeover actions a company may engage in to prevent or slow the takeover process. These other systems include:

 

1. Golden parachutes

Golden parachutes refer to top-level executives and members of management being offered expensive severance packages that are automatically triggered in the event of a takeover. The packages are usually worth a substantial amount in cash, stock options, and other equity that depletes the value of the targeted company

 

2. Poison pill options

The most common poison pill options include the flip-in and flip-over strategies. The former is a provision that enables existing shareholders of the target company to purchase more shares of the company at a substantial discount. The flip-over poison pill enables areexisting shareholders of the target company to purchase shares of the acquiring company at a substantial discount.

 

More Basic Examples of Show Stoppers

Within a company, there are a number of events or situations that can arise to derail a project. It can depend on what the project is; however, almost any project can be affected by a few common show stoppers. Ineffective communication is one. This is particularly true for projects that require multiple teams of workers or departments all coming together for the project’s completion.

When one department or team isn’t communicating effectively with another, the schedule for the project can be thrown off. If one department doesn’t complete its part, another may not be able to complete theirs. A breakdown in communication can bring the project to a standstill until the lines of interaction are restored. This is why effective communication is so vital.

Time and budget issues are other examples of show stoppers in relation to a given project. Budget issues can result from a communication breakdown or simply the arrival of unexpected costs that put a project over budget. The executive team may be unable or unwilling to provide additional funding for a project, or a client may cancel their order if a project’s speculated cost climbs. Such issues can be difficult to fix and can derail a project entirely unless costs can be scaled back or additional funding obtained.

 

Final Word

A showstopper, in most cases, refers to a legal or operational action that stops one company from taking over another. In its broadest sense, however, a show stopper is anything that prevents forward movement or progress from being made until it is removed or otherwise resolved.

 

More Resources

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:

  • Control Premium
  • Flip-Over Strategy
  • Poison Put
  • Project Management

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