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Hostile Takeover Defense Strategies: Crown Jewel Defense

Hostile Takeover Defense Strategies: Crown Jewel Defense

   2022-08-11T18:36:45+08:00


Published by BSIC on 4 April 2021

Crown Jewel Defense

When there is a takeover attempt by another company, often the goal of the acquiring company will be to obtain the most valuable information and operations that make up the “crown jewels” of the target. The crown jewel defense strategy involves selling these assets, often at a discount, to a third party or spinning off the assets into a separate entity. A company can employ this defense by creating anti-takeover clauses which compel the sale of their crown jewels if a hostile takeover occurs. The main goal of the crown jewel defense strategy is to make the target company less attractive to the raider since the acquirer would not receive the desired operations or information if they proceeded with the takeover.

How does it work?

  1. Company A approaches Company B with a bid offer to purchase the company.

  2. Company B rejects the bid offer.

  3. Company A pursues the acquisition anyway by offering to buy shares of Company B at a premium.

  4. Company B reaches out to a friendly company C to purchase Company B’s assets. Company B and Company C sign an agreement that Company B will purchase back its assets at a slight premium once the hostile bidder is gone.

  5. Since the most valuable assets of Company B are gone, Company A retracts its hostile bid.

  6. With the hostile bidder gone, Company B repurchases its assets from Company C at the predetermined price.

A real-life example of this practice is the Suez-Veolia case, two water and waste management leaders in France which since October 2020 are still today in a dispute, as last year Veolia launched a takeover attempt of Suez purchasing as much as 29.9% of stock for $3.4bn.

The announcement of a takeover defense strategy intended to permanently discourage Veolia triggered a sell-off, which left Suez’s shares trading further below Veolia’s 15.50 euro offer. In the event of a complete takeover, Veolia has publicly stated that it will sell Suez’s French water company to appease antitrust authorities. Suez has taken steps to protect the asset by enacting a security known also as “the crown jewels.” The plan is to create a Dutch foundation to own a symbolic yet powerful piece of the division, ensuring that it does not become isolated from the rest of the community. It is hardly a foolproof defense if the objective is to make Suez unbuyable. For example, in an attempt to fend off Lakshmi Mittal in 2006, steelmaker Arcelor tried and failed to do anything similar, though it did end up receiving a higher bid. Suez’s strategy may be undone if the board receives a sufficiently compelling bid. Veolia, overall, is unlikely to see this as a deal breaker on its own.

Posted from SLPRO Z

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Harvey Yan

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