'Just Say No' Defense

What Is a "Just Say No" Defense?

A "just say no" defense is a strategy employed by boards of directors to deter hostile takeovers by essentially declining to arrange and dismissing outright anything that the prospective buyer could offer.

The legitimateness of a "just say no" defense might rely upon whether the target company has a long-term strategy it is seeking after, which can incorporate a merger with a firm other than the one making the takeover bid, or on the other hand in the event that the takeover bid undervalues the company.

Understanding a "Just Say No" Defense

The starting points of the "just say no" defense can be followed to the 1980s, when raiders with deep pockets bought undervalued companies, dissecting them for a quick profit. This provoked defenseless companies to think of strategies to ruin corporate looters.

The "just say no" defense was named after the anti-drug campaign advanced by former First Lady Nancy Reagan. The defense surrendered it to the board to choose whether to acknowledge or dismiss a bid, paying little mind to how much was being offered. Reasons could incorporate anything from fear of job security to a general aversion of the acquirer.

An early utilization of the term happened in 1990 when NCR Corp. dismissed AT&T's initial $90-per-share tender offer. NCR Chair Charles Exley said the board's position was to "just say no" to the telephone monster.

The target company's board could deal with an undesirable bid by declining to arrange and postpone potential defense strategies like a poison pill. This position might be taken to deliver a takeover inconceivable. On the other hand, it very well may be sought after to remove a better offer, either from a similar bidder or, better yet, from a friendly white knight.

Illustration of a "Just Say No" Defense

The case of Paramount Communications versus Time laid out the "just say no" defense as a feasible anti-takeover strategy. Time was close to merging with Warner Communications however at that point received a bid from Paramount that its board dismissed in light of the fact that the distributing company had proactively negotiated a long-term plan with Warner. In July 1989, the case was heard in the Court of Chancery in Wilmington, Delaware.

The Delaware courts had laid out points of reference for corporate board activities during mergers and acquisitions in two previous cases. The Delaware Supreme Court governed in the 1985 case including Unocal, that directors protecting their company from a marauder might answer just in a reasonable manner. Meanwhile, in the 1986 Revlon case, that's what the court decided assuming that the board chooses to sell a company, it must acknowledge the highest bid and not show any bias.

Luckily for Time, the judge supported its board as the corporation's trustees in this, even if shareholders could well have preferred to acknowledge Paramount's bid, adding that corporate law doesn't constrain directors to follow the desires of the majority of the shares. To support the decision for the Time-Warner merger, the judge stated: "Directors, not shareholders, are accused of the duty to deal with the firm."

On appeal, the Delaware Supreme Court maintained the decision consistently.

Analysis of a "Just Say No" Defense

A "just say no" defense isn't really to the greatest advantage of shareholders since board individuals can utilize it even on the off chance that an offer is made at a critical premium to the current share price.

Adding to this disappointment is a number of accounts of companies utilizing this strategy to hold firm and that's what rebuke offers, by and large, they would have been better off accepting. One model is Yahoo, which participated in a "just say no" fight to fight off a $44.6 billion bid from Microsoft (MSFT) in 2008 and afterward ended up selling off its core business several years after the fact for $4.83 billion.

Special Considerations

There is a critical risk that a "just say no" defense won't be accepted by the courts. Assuming the price offered looks fair and shareholders support it, the board's option to "just say no" may not be suitable.

In any case, that doesn't mean that directors won't try it out. Indeed, disappointment is conceivable. Yet, thus, too, is the prospect of getting the company's freedom or, bombing that, essentially pressing out a better price for the business.

Features

• Named after Nancy Reagan's "Just Say No" anti-drug campaign, this strategy empowers the board to choose whether to acknowledge an acquisition proposal or not.
• A "just say no" defense is a strategy utilized by boards of directors to beat hostile takeovers down by dismissing outright the takeover bid.
• The legitimateness of a "just say no" defense might rely upon whether the target company has a long-term strategy or on the other hand on the off chance that the takeover bid undervalues the company.
• A "just say no" defense is one of numerous strategies to prevent hostile takeovers. Others incorporate a poison pill strategy and a white knight strategy.
• Such a position might be taken to deliver a takeover incomprehensible or to empower better offers either from a similar bidder or, better yet, from a friendly white knight.

FAQ

What Is the Poison Pill Defense?

A poison pill defense is a strategy employed by a company to prevent a hostile takeover. It is utilized when a potential acquirer possesses a large portion of a company's outstanding shares. A poison pill strategy permits existing shareholders (yet not the expected acquirer) to purchase extra shares at a discounted price, in this manner weakening the value of the potential acquirer's shares.To control a huge portion of the company once more, the potential acquirer would need to spend more money purchasing shares, making the endeavored takeover more costly.

Are Takeovers Good for Shareholders?

Takeovers are generally better for the company being acquired as the share price goes up for that company though takeovers are generally less beneficial for the shareholders of the getting company, as the share price ordinarily goes down. Takeovers are complex strategies and contingent upon how they are established and carried out once complete, all shareholders can benefit or none by any means.

What Is the Just Say No Strategy?

A just say no strategy is a defense strategy utilized by the board of directors of a firm to prevent a hostile takeover. The strategy includes declining to arrange and dismissing all outright offers that a potential acquirer makes.