When we hear the term “lobster trap,” maybe we picture some sort of Deadliest Catch scenario involving rough seas and lots of swear words. But in the world of business takeovers, lobster traps have less to do with delicious crustaceans and more to do with corporate voting rights. (Though there might still be swear words.)
In the business world, a “lobster trap” is a strategy designed to prevent hostile takeovers. In a nutshell, the organization’s powers-that-be pass a provision that forbids anyone who owns more than 10% of the company’s stock (or bonds or warrants or other securities) to convert those securities into voting rights. The purpose here is to ensure that sneaky investors aiming to take us over by buying up all of our stock...can’t do it. They can buy the stock if they want to, but it won’t get them the voting power they’d need to actually take control.
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Finance: What is a Pac Man Defense?21 Views
Finance a la shmoop what is a pacman defense?
[Pacman eating] yeah well wacka wacka to you too...Hostile takeovers are rare in real life not so
rare in pac-man but when they do happen there exists a whole cadre of strategies
behind defending them at least from the company's perspective being taken over
there and pac-man defense is inarguably the best named strategy of all of
them in essence what happens when we'll say an angry competitor let's call him
blinky Inc tries to buy an angrier competitor let's call them inky inc.
well blinky would be buying shares of inky in the open marketplace filing to [Blinky and inky appear]
go past 15% ownership and eventually own enough shares to elect its own Board of
Directors and make a takeover happen well in a Pac Man defense as blinky is
snarfing up shares of inky, inky buys shares of blinky sort of turning the
tables you know like this and while you're gobbling up that competition and [Pacman gobbling competition]
don't forget to eat a bunch of cherries or a strawberry every once in a while
because you know you still need your fruits and veggies
Up Next
What is a Hostile Takeover? A hostile takeover happens when a buyer goes past the management of a company to acquire it. The company’s management...