Capital Market and Securities Laws · Acquisition of Shares and Takeovers - Concepts

Takeover Defence Strategies and Related Terms for CS Executive

Updated 11 October 2026 · Fact-checked

Takeover defence strategies are tactics a target company uses to resist a hostile bid. Main ones are the poison pill, white knight, greenmail, golden parachute and crown jewel. To answer, define the tactic, say how it works, give a simple example, and note that Indian law and SEBI rules limit such actions.

Understand Takeover Defence Strategies and Related Terms

A takeover happens when an acquirer gains control over a target company, usually by buying its shares. If the target's board agrees, it is a friendly takeover. If the board opposes the bid, it is a hostile takeover. Defence strategies are used in the hostile case.

The common defences have fixed names, and exams ask you to match the name to the tactic:

Poison pill: the target makes itself unattractive or costly to acquire. A typical form lets existing shareholders (other than the acquirer) buy extra shares at a steep discount once the acquirer crosses a set holding. This dilutes the acquirer.
White knight: a friendly third party that the target invites to buy it on better terms, so the hostile bidder loses.
Greenmail: the target buys back the shares held by the hostile bidder at a premium price, so the bidder goes away. Other shareholders do not get this premium.
Golden parachute: a very generous compensation package promised to top executives if they lose their jobs after a takeover. It raises the cost of the deal for the acquirer.
Crown jewel defence: the target sells or disposes of its most valuable assets so the bidder loses interest.
Pac-man defence: the target turns around and makes a counter-bid for the acquirer.

Two related terms are often confused with takeovers. In a merger, two or more companies combine, and one survives while the other is absorbed into it. In an amalgamation, two or more companies combine to form a new company or merge into an existing one, usually under a court or tribunal approved scheme. A takeover is about gaining control, and the target may continue to exist as a separate company. A merger or amalgamation ends the separate existence of at least one company.

In India, the target board must act in the interest of shareholders. Defences that favour the management over shareholders, or that break SEBI rules or the Companies Act, 2013, are not allowed. Many of these tactics come from foreign practice, so treat them as concepts to explain, not as steps that are always legal in India.

Key rules to remember

Poison pill: Acquirer crosses trigger holding → other shareholders buy shares at a discount → acquirer's stake is diluted; Defence that makes the target costly to acquire.
White knight: Hostile bidder → target invites friendly bidder → better terms for target; The friendly bidder is a third party, not the target itself.
Greenmail: Target buys back the bidder's shares at a premium → bidder withdraws; Premium is paid only to the bidder, which is unfair to other shareholders.
Golden parachute: Loss of job after takeover → large payout to top executives; Protects executives and raises the acquirer's cost.
Merger vs takeover: Merger = combination, one company absorbed; Takeover = acquisition of control; A takeover need not end the target's separate existence.

How to solve Takeover Defence Strategies and Related Terms questions

Use this method for any question on defence strategies or related terms.

1Read the question and identify whether it asks for a definition, a match, a distinction or a scenario.
2Name the strategy or term precisely, for example poison pill or white knight.
3Explain how it works in one or two plain sentences, and who gains or pays.
4Add a short rupee-based example using an Indian company name if the question is a scenario.
5State the effect on the acquirer, the target and the shareholders.
6Note the legal position: the board must act in shareholders' interest and follow SEBI and Companies Act rules.
7Close with a clear one-line conclusion that answers the exact question asked.

Quickest way: Four-line recall for defence tactics

When to use it: Use when you have little time or when the question asks you to list or match defences.

Write the name, then the one-line meaning.
Link each to a keyword: pill = dilute, knight = friendly rescuer, greenmail = buy back at premium, parachute = executive payout.
Add one line on the effect on the bidder.
End with one line that these must stay within Indian law.

Common mistakes in Takeover Defence Strategies and Related Terms

Calling greenmail a type of poison pill.
Both sound like financial tactics against a bidder.
Fix: Remember greenmail means buying back the bidder's shares at a premium. A poison pill dilutes the bidder.
Saying a white knight is the target's own management.
The word knight suggests a defender from inside.
Fix: A white knight is an outside, friendly acquirer invited by the target.
Saying a golden parachute benefits all shareholders.
Students read it as a general protection.
Fix: It benefits only top executives. It may raise cost for the acquirer.
Treating merger, amalgamation and takeover as identical.
All involve two companies coming together.
Fix: Takeover means gaining control. Merger and amalgamation mean combining companies, often through a tribunal approved scheme.
Presenting every defence as freely allowed in India.
Textbook descriptions come from foreign practice.
Fix: State that the board must act for shareholders and obey SEBI and Companies Act rules.

Worked examples

Example 1

Explain poison pill and white knight defences with a suitable example.

Show the solution

Define poison pill: the target makes a takeover costly, often by letting existing shareholders other than the acquirer buy shares at a discount once the acquirer crosses a set holding.
Example: Alpha Ltd. has 1,00,000 shares. A bidder buys 25% and crosses the trigger. Other shareholders can buy new shares cheaply, so the bidder's percentage falls.
Define white knight: the target invites a friendly third party to buy it on better terms.
Example: Beta Ltd. faces a hostile offer and invites Tata-type group company Gamma Ltd. to bid, so the hostile bidder loses.
Conclude on effect: both defences protect the target from an unwanted bidder, but the board must keep shareholders' interest first.

Answer: A poison pill dilutes the hostile bidder's holding; a white knight is a friendly rescuer who takes over instead. Both are defences used against hostile takeovers.

Example 2

Distinguish between greenmail and golden parachute.

Show the solution

Greenmail: the target buys back the hostile bidder's shares at a premium, so the bidder leaves.
Golden parachute: top executives get a large payout if they lose their jobs after a takeover.
Who benefits: in greenmail, the bidder gains a premium; in golden parachute, the executives gain.
Effect on other shareholders: in greenmail they do not get the premium; in golden parachute the cost may reduce company value.
Purpose: greenmail ends the threat quickly; golden parachute makes the takeover costlier.

Answer: Greenmail is a premium buy-back from the bidder to ward off a takeover. A golden parachute is a compensation package for senior executives that raises the acquirer's cost.

Exam tips

Learn the six defence names with a one-line meaning each. Matching and short notes are common.
For a distinction question, write in two columns of points: meaning, who benefits, effect, example.
Always add a line that defences must stay within SEBI and Companies Act limits.
Do not mix up merger, amalgamation and takeover. Give one clear difference.
Use an Indian company and rupee figures in examples to make your answer concrete.

Practice questions from Acquisition of Shares and Takeovers - Concepts

Takeover Defence Strategies and Related Terms in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Takeover Defence Strategies and Related Terms: frequently asked questions

What is a poison pill in a takeover?

A poison pill is a defence in which the target makes itself costly to acquire. It often lets other shareholders buy shares at a discount once the acquirer crosses a set holding. This dilutes the acquirer's stake.

What is the difference between greenmail and a golden parachute?

Greenmail is a buy-back of the hostile bidder's shares at a premium to make the bidder leave. A golden parachute is a large payout promised to top executives if they lose their jobs after a takeover.

What is the difference between a merger and a takeover?

A takeover is the acquisition of control over a company, and the target may remain a separate company. A merger combines companies so that at least one loses its separate existence.

How can a company defend against a hostile takeover?

It can use tactics such as a poison pill, a white knight, greenmail, a golden parachute, a crown jewel sale or a pac-man counter-bid. In India, the board must still act in shareholders' interest and follow SEBI and Companies Act rules.