Whitemail

What Is Whitemail?

Whitemail is a defensive strategy that a takeover target can use to try to frustrate a hostile takeover attempt. Whitemail includes the target firm giving a large number of shares at below-market prices, which are then sold to a friendly outsider.

This assists the target with keeping away from the takeover by expanding the number of shares the acquirer must purchase to gain control, hence expanding the price of the takeover. It additionally weakens the firm's shares. Plus, since a friendly outsider currently claims and controls a large block of shares, the aggregate number of friendly shareholders increases.

On the off chance that the whitemail strategy is effective in deterring the takeover, the company can either buy back the issued shares or leave them outstanding.

Figuring out Whitemail

There are two fundamental strategies employed to obtain a controlling interest in a company as a hostile takeover bid.

In the first place, the acquirer might make a tender offer to the company's shareholders. A tender offer is a bid to buy a controlling share of the target's stock at a fixed price. The price is normally set over the current market price to permit the sellers a premium as an additional incentive to sell their shares. This is a proper offer and may incorporate determinations included by the acquirer like an offer expiry window or different things. Desk work must be recorded with the Securities and Exchange Commission (SEC), and the acquirer must give a summary of its plans for the target company to aid the target company's decision.

Numerous takeover defense strategies safeguard against tender offers, so frequently the proxy fight is used. The goal of a proxy fight is to supplant board individuals who are not for the takeover with new board individuals who might vote for the takeover. This is finished by persuading shareholders that a change in management is required and that the board individuals who might be selected by the eventual acquirer are just what was needed.

Whitemail is a strategy that can be utilized to battle off an undesirable takeover endeavor by giving shares at a below-market price and selling them to friendly an outsider. These new shares sabotage the tender offer by making it generally more costly for the acquirer to endeavor this route. Simultaneously, the new friendly shareholder will be less inclined to consent to a tender offer or to a proxy fight to put in new board individuals.

Whitemail is just one of several defensive strategies to deflect a hostile takeover.

Illustration of Whitemail

XYZ Corporation has a million shares outstanding. ABC Inc. needs to gain XYZ Corp. furthermore, starts to buy up each of the shares they can in the public secondary market trying to get to a controlling extent of shares.

XYZ Corp. hears about this and proceeds to institute a whitemail policy. They issue 250,000 new shares at a huge discount to the current secondary market price and sell them all to DEF Industries, which is a company that XYZ has a decent relationship with.

The increase of outstanding shares from a million to 1,250,000 increases the number of shares ABC should purchase to gain a controlling interest. Plus, the voting rights of all XYZ shares are presently diluted, lessening ABC's power to vote for board individuals who favor their takeover.

Features

• Whitemail is a hostile takeover defense that includes giving a large number of new shares to friendly shareholders.
• The goal is to weaken the shares enough and secure adequate proxy votes to fight off an undesirable acquirer.
• An effective whitemail defense can close with the target company re-obtaining its new shares.