Explanation:
Standard anti-takeover strategies advised by investment banks usually include legal and structural hurdles, known collectively as "shark repellents." Option A refers to a "poison pill" or shareholder rights plan, which allows existing shareholders to sell shares at a premium or buy at a discount if a takeover is initiated, diluting the acquirer's value. Option B involves using litigation to delay or derail the takeover. Option D describes "poison puts" or accelerating the vesting of employee stock options upon a change in control, which increases the cost for the acquirer.
Option C is generally not a viable part of sound legal or financial advice, because corporate law generally prohibits making director contracts impossible to terminate (directors are ultimately accountable to shareholders and can be removed by them). So entrenching directors unconditionally violates corporate governance laws. Therefore, it would not form part of the advice.
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Q.7 Karsley Bank, located in Arizona, wishes to establish its footing in Delaware by acquiring Quota Bank. Employees and senior management of the latter do not want their business to be enjoined to that of the former in part because they feel their bank’s future is bright. In particular, the directors of Quota Bank fear that the new owners may opt to fire them in favor of new management located in Arizona. The directors decide to seek advice from a reputable investment bank on how to fend off the takeover. Assuming you were one of the advisory panel members, which of the following would likely not form part of your advice?
A
That Quota Bank adds to its charter a provision that if another company acquires one-third of the shares, other shareholders have the right to sell their shares to that company for a large premium over market prices
B
That Quota Bank should file a lawsuit to dispute the possible takeover
C
That Quota Bank adds to its charter a provision making it impossible for any new owners to terminate the contracts of existing directors
D
That Quota Bank grants its employees stock options that can be exercised in the event of a takeover
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