Defense strategies against hostile takeovers Thesis

Defense strategies against hostile takeovers - Thesis Example Dismissal of the existing employees would mean that the acquiring company will have to pay hefty benefits as send-off packages to the dismissed employees (Harris, 1990). This makes acquisition expensive for potential acquirers, making them to think twice about their acquisition intentions. The Golden Parachute is effective to the extent that it benefits stakeholders and enables a company to prevent any hostile takeover (Harris, 1990). Golden Parachutes make it easier for stockholders to hire and retain managers in industries that are prone to mergers and acquisition. The defense mechanism also helps the executive to remain objective about the company during a takeover process. Furthermore, it increases the cost of a takeover; hence discouraging bidders from acquiring the target company. This is because Golden Parachutes make it prohibitively expensive for potential acquirers to acquire a target company if they want to dismiss the managers of the target company. Dismissing managers in a company with Golden Parachutes comes with a high price. Golden Parachutes were applied at Fortune 1000 companies from 35% in 1987 to 81% in 2001. Citigroup Inc. applied Golden Parachute when they offered John Reed $30 million as severance pay and $5 annually for life. A company seeking to acquire another company may try to get representations in the board of the targeted company so that the acquirer can have voting power and influence other board members to accept the bid or persuade shareholders to accept the takeover. This type of defense against takeovers requires the approval of shareholders in a shareholders’ meeting in order to be created. Members of the board are chosen with the support of shareholders. In order to be a member of staggered board, the acquirer needs to purchase shares to vote in order to enable a single shareholder to sit with members of the targeted company’s board (Bebchuk et al, 2002). Staggered board makes the process