Question

You are required to provide a comprehensive report in which you advise company A and B. Your report should include the following, as applied to the case study:

a) Research and critically evaluate the strategies that can be used by the target company to prevent a takeover. (25 marks)

Answer 1

To prevent a takeover, companies can implement strategies such as poison pill defense, strategic alliances or mergers, staggered boards, and golden parachute provisions.

Step-by-step explanation:

To prevent a takeover, companies can implement several strategies. One strategy is to adopt a poison pill defense, which involves issuing new shares to existing shareholders in the event of a hostile takeover attempt. This dilutes the ownership of the acquiring company and makes the takeover more expensive. Another strategy is to enter into a strategic alliance or merger with a stronger company, creating a larger entity that is less vulnerable to takeover.

Companies can also employ defensive tactics such as implementing staggered boards, which means that only a portion of the company's directors are up for election each year, making it more difficult for an acquiring company to gain control of the board. Additionally, companies could establish a golden parachute provision for top executives, ensuring lucrative compensation packages in the event of a takeover, discouraging potential acquirers from proceeding.

Overall, the key to preventing a takeover is for the target company to create barriers that make it difficult and costly for an acquiring company to gain control.