======Anti-Takeover======
Anti-takeover measures (also known as 'shark repellents') are defensive tactics used by a company's management and board of directors to prevent or discourage a [[hostile takeover]]. This is a situation where an outside company, the [[acquirer]], tries to buy a controlling stake in the business, the [[target company]], against the wishes of its current leadership. Imagine the target company's management building a fortress to fend off an unwelcome suitor. These defenses can range from legal maneuvers embedded in the company's charter to strategic actions that make the company a less appealing or more expensive target. For a [[value investor]], the existence of these measures is a double-edged sword. On one hand, they can theoretically protect shareholders from a low-ball offer that undervalues the company. On the other, and more often a concern, they can entrench underperforming management, preventing a change of control that could unlock significant value for the true owners of the company: the shareholders.
===== The Rationale Behind the Fortress Walls =====
Why would a company want to make itself harder to buy? Management’s public reason is almost always the protection of [[shareholder]] value from predatory, short-term-focused bidders. They argue that these defenses give them the stability and time needed to execute a long-term strategy that will ultimately benefit everyone. This can be a valid argument, especially if a potential acquirer is known for breaking up companies or is making an offer that is clearly opportunistic and below the company's [[intrinsic value]].
However, a healthy dose of skepticism is essential. A more cynical—and often more accurate—view is that these measures are designed to protect the jobs, salaries, and perks of the current management team. By making a takeover difficult or impossible, executives ensure they remain in control, even if they are doing a poor job. For value investors, a company loaded with anti-takeover provisions is often a major [[red flag]]. It suggests a management team that may be more interested in self-preservation than in maximizing shareholder returns. True alignment means being open to any outcome that creates the most value for owners, including being acquired at a fair price.
===== A Rogues' Gallery of Anti-Takeover Tactics =====
Companies have devised a colorful array of defenses over the years. Some are subtle, while others are aggressive acts of corporate warfare. Here are some of the most common shark repellents you'll encounter.
==== The Poison Pill (Shareholder Rights Plan) ====
This is the classic, and perhaps most potent, anti-takeover defense. A [[poison pill]] (formally a [[shareholder rights plan]]) is triggered when an unwelcome acquirer buys a certain percentage of the company’s stock (typically 10-20%). Once activated, the "pill" allows all other shareholders to buy newly issued shares at a steep discount.
  * **Effect:** This flood of new shares causes massive [[dilution]], drastically increasing the number of shares the acquirer would need to buy to gain control.
  * **Result:** The cost of the takeover skyrockets, making it prohibitively expensive and effectively "poisoning" the deal for the hostile bidder.
==== Staggered Board of Directors (Classified Board) ====
A [[staggered board]] (or [[classified board]]) is a structural defense where the board of directors is split into separate classes (usually three). Only one class of directors is up for election each year.
  * **Effect:** An acquirer cannot gain control of the board in a single year, even if they own more than 50% of the stock. It would take at least two or three annual shareholder meetings to vote in a majority of their preferred directors.
  * **Result:** This delay tactic gives management ample time to mount other defenses and frustrates the acquirer's attempt to take control through a [[proxy fight]].
==== The White Knight and White Squire ====
When faced with a hostile bidder (the "black knight"), the target company may seek a friendlier partner.
  * **White Knight:** A [[white knight]] is a friendly company that the target's management invites to acquire them instead. The terms of the deal are usually better for shareholders and kinder to the existing management team than the hostile offer.
  * **White Squire:** A [[white squire]] is a friendly investor (an individual or another firm) that buys a substantial [[minority stake]] in the target company. They don't take full control, but their block of shares is large enough to prevent the hostile bidder from achieving a majority, thus thwarting the takeover attempt.
==== Golden Parachutes ====
A [[golden parachute]] is a lucrative compensation package guaranteed to top executives if they are terminated following a takeover. These packages can include enormous severance pay, stock options, and other benefits.
  * **Effect:** While proponents argue these contracts keep executives focused on shareholder interests during a takeover battle (by removing their personal financial worries), they significantly increase the cost of the acquisition.
  * **Result:** Critics, including most value investors, often view them as excessive rewards for failure and a clear conflict of interest, designed more to enrich management than to protect shareholders.
==== Other Common Defenses ====
  * **Pac-Man Defense:** Named after the video game, this is where the target company turns the tables and attempts to acquire the hostile bidder.
  * **Crown Jewel Defense:** The target company sells off its most valuable assets—its "crown jewels"—to make itself a much less attractive acquisition target.
  * **Supermajority Amendment:** A change to the corporate charter requiring an extremely high percentage of shareholder votes (e.g., 75% or 80%) to approve a merger, making it very difficult for an acquirer to get the necessary support.
===== The Value Investor's Verdict =====
For the disciplined value investor, the presence of strong anti-takeover defenses is almost always a negative sign. Great businesses run by shareholder-oriented managers don't need to hide behind fortress walls. They create value through operational excellence and intelligent capital allocation. When you see a company armed to the teeth with poison pills and a staggered board, ask yourself: //What is management so afraid of?//
Often, the answer is accountability. These defenses can shield an incompetent or lazy management team from the consequences of their poor performance. They prevent a more capable operator from stepping in, buying the company at a premium, and creating more value for everyone. Before investing, always review a company's [[proxy statement]] and annual reports. If you find a long list of shark repellents, it's a strong signal that management's interests may not be aligned with yours.