Weapons of the Anti-Merger Arsenal

A corporate merger can sometimes provide added strength to a company. However, in some cases, you may not want a merger to actually go through. Here are a few ways that a company could try to avoid a merger with another corporation.

Vote Against It

One way that you could try to stop a merger is to act against it in the board room. When a company is proposing a merger with another company, it will have to get through a board room vote first. Therefore, if you currently sit on the board, you can vote against the proposed merger.

If you do not sit on the board, you can try to reach the board members and talk them into voting against it. Many times, people form alliances within the board and will vote the same way together. This could potentially head off the merger before it starts to gain steam.

Poison Pill

Another method that is sometimes employed in order to stop a merger is called a poison pill. This solution involves changing the company bylaws in order to alter the way that stock can be purchased. With this measure, you can set the poison pill to go into effect when a single shareholder purchases more than a certain percentage of stock in the company. When this happens, other investors will then be allowed to purchase a large amount of shares as well. This is a way to dilute the strength of each share and make it difficult for someone to perform a hostile takeover. Many times, a company will purchase more than 50% of the authorized stock in a company in order to gain control of it. However, with the poison pill tactic, this will be very difficult or impossible to do.

Debt Problems

Another way that you could potentially stop a merger is to make your company less attractive through debt financing. If you know that a merger is on the horizon, you could potentially take on a large new debt or loan in order to make the numbers appear less attractive. The company that wishes to merge with you might change their mind when they see how much debt you have.

Voting Trust

Many times before a merger, the shareholders will get to vote on whether or not they want the merger to go through. For each share of stock, a shareholder will receive one individual vote. If left up to the shareholders, you will typically it a wide range of opinions on whether or not a company should merge.

One way that you can work with shareholders to accomplish your means is to form a voting trust. A voting trust is a legal entity that will take control of shareholders interests in the company for a set period of time. This will give the legal entity the power to control the votes from all of the shares. The voting trust can vote against the merger and then return the shares back to the original shareholders. This might be a difficult way to go about solving the problem, but it can work in extreme circumstances.

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