Corporate Diversification

A rich vocabulary developed, especially in the 1980's, to describe M&A activities. Below are some of the terms students will encounter in reading about corporate mergers.

TAKEOVER GLOSSARY

Bear Hug - an un-negotiated tender, made in the form of a letter to the Board of Directors; not an attractive offer, but will get shareholder protests if board rejects

Black Book - defensive strategy implemented in case of a takeover

Black Knight - a party making a hostile takeover offer

Creeping Takeover - gradual acquisition of firm's stocks

Crown Jewel Option - selling or optioning a company's best assets to a third party to make the firm a less attractive takeover target

Drop-dead Fee - fee paid to lenders by a acquirer when a takeover fails and financing lines of credit are not used

Flip-over Provision - a provision in a firm's charter to permit conversion of preferred stock to common stock in case of a takeover; creates more stocks that have to be bought

Freeze-out - pressure on hold-out shareholder to turn over their shares to a new owner

Golden Handcuffs - an employment agreement that makes it costly for a manager to leave a firm

Golden Parachute - generous termination benefits for senior managers when a new owner takes over

Gray Knight - a potential acquirer arriving after a acquirer Black and White Knight losses interest

Greenmail - premium paid by a target to buy back its stock from a potential acquirer to get the acquirer to abandon the attempt

Killer Bees - specialists (lawyers, bankers) kept on retainer to fight off a hostile takeover

LBO - leverage buyout; acquisition using high degree of debt in relation to equity

Lockup Agreement - a target and acquirer agree to make the target very unattractive to any other offer

Lollipop Tactic - an attempt to stop a takeover by allowing shareholders to tender their stocks at a premium if an unfriendly bidder buys a certain number of shares

MBO - management buyout; top managers buy firm

Mezzanine Financing - intermediate financing for and LBO, usually 2 - 10 years

Nibble Strategy - purchase of a minority position before making a tender offer

Pac-Man Defense - the target attempts to acquire control of a hostile acquirer

Poison Pill - a tactic to make a takeover more expensive (see, Flip-over Provision)

Porcupine Provisions - charter or by-laws that thwart takeovers

Radar Alert - close monitoring of a stock to see if a party is actively buying up a stock

Raider - a hostile acquirer outside the company

Recapitalization - radical change of capital structure to make company less attractive

Godfather Offer - a tender offer so generous, that management cannot refuse

Saturday Night Special - a seven day cash tender offer for a company's stock; usually made on Saturday night to make it difficult to get hold of key advisers

Scorched Earth Defense - target sells assets so firm is no longer attractive

Shark Repellent - a Poison Pill

Showstopper - litigation to stop a takeover

Sleeping Beauty - a takeover target

Tender Offer - offer to shareholders to buy part or all of a firm's outstanding shares

Tidal Wave Purchase - overwhelming a target with volume of stock purchases

White Knight - a friendly party who saves a firm from a hostile takeover