Hello YouTube, Todd Ault here, and Welcome to Wall Street Words! Today’s Wall Street term is “Shark Repellent”
Not that we go swimming and put something in the water. That’s trying to prevent someone from trying to take over your company. Now, Shark Repellent is generally put into place before someone comes to try to take over your company. An example of this is you can have bylaws or certain restrictions on your public company that kind of prevent a suit or someone who’s trying to take over you, a LBO or a buyout artist. Try to prevent them from doing it because they find these little shark repellents in the water of your company. They’re already deployed and they get more expensive or more difficult for them to take you over. Now, an example in the 80’s, is that TWA was bought out by Carl Icahn, but they unfortunately were lazy, didn’t pay attention, didn’t have the shark repellents in place and Carl Icahn was able to take control of the company by simply buying it in the open market. There’s provisions today in Delaware, in Nevada and other states that can prevent someone going over 15% or 20% without board approval or make it very difficult to take companies over. Today’s word is “Shark Repellent.”
Definition – A corporate strategy to ward off unwanted or hostile takeovers. In many cases, a company will make special amendments to its charter or bylaws that become active only when a takeover attempt is announced or presented to shareholders with the goal of making the takeover less attractive or profitable to the acquisitive firm. It is also known as a “porcupine provision.”
Examples of this anti-takeover measure include making a major acquisition, issuing new shares of stock or securities convertible into stock, poison pills, scorched earth policies, golden parachutes, safe harbor strategies and staggering the election of directors. Shark repellents often benefit corporate officers more than the stockholders. On August 28, 2017, shoe retailer The Finish Line, Inc. announced that its Board of Directors adopted a shareholder rights plan (poison pill) “to protect the best interests of Finish Line shareholders. The [plan] is intended to reduce the likelihood that any person or group would gain control of Finish Line through open market accumulation or coercive takeover tactics that the Board of Directors determines are not in the best interest of the Company and its shareholders.” Details of this shark repellent are disclosed in a Form 8-K filing by the company. The day after the announcement of the adoption of the poison pill plan the company’s stock plummeted as much as 34% from the previous closing price and ended the day down around 18%. With no other negative news impacting the company that day, it is safe to assume that shareholders were repelled themselves by the shareholder rights plan.
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