Corporate Antitakeover Defenses

Description
n n

Brickley/Lease/Smith (1988), Table A.1. Example: Poison Pills

n

Firms issue rights to shareholders. These rights allow shareholders to purchase shares in surviving firm (bidder) at a substantial discount (50%) from the market price. However, (target) firms directors can postpone date when these right become exercisable.

Are corporate antitakeover defenses in the interest of shareholders?

n

No.
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Discourages takeovers (lowers probability of a takeover). Encourages higher premia. Target managers bargaining position improves. Of course, since shareholders have to vote to approve such defenses.

Yes.
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Stock Markets reaction to announcements of corporate antitakeover defenses. n Earlier studies: Zero market reaction.
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Tale (Tail !) of the dogs that did not bark!

Did the stock market anticipate announcements of corporate antitakeover defenses? Bhagat-Jefferis (1991): Yes. Table 7.
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After adjustment for anticipation: -1%

Brickley/Lease/Smith (1988)
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Over 95% of management-sponsored antitakeover provision proposals pass. Who votes for such proposals? (Table 2)
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Managers and directors. Pressure-sensitive institutions (insurance companies, bank trusts)

Who votes against such proposals?

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Unaffiliated blockholders. n Pressure-resistant institutions (public pension funds, mutual funds, endowments). Question: Costs on shareholders of understanding firmvalue consequences of these and other proposals on a proxy statement.

Over 95% of management-sponsored proposals pass? Why? Bhagat/Jefferis (1991): Managers only propose amendments that are (very) likely to pass. n Table 7: As votes controlled by ESOPs (affiliated investment plans) increases, managers are more likely to propose antitakeover amendments. n Table 7: As votes controlled by CEO/officers/directors increases, managers are less likely to propose antitakeover amendments.

Table 7: As votes controlled by CEO/officers/directors increases, managers are less likely to propose antitakeover amendments. Why?
n

Do not want to discourage takeovers (and associated premia). As they own more shares, less concerned of a hostile takeover and job-loss.