ACCA Strategic Professional · Advanced Financial Management · Regulatory framework and processes
Target's board is considering a 'crown jewel' defence in response to a hostile bid. Which description best fits this tactic?
The crown jewel defence means selling or spinning off the target's most attractive asset or division so the bidder loses the main reason for acquiring it. It differs from a white knight, a leveraged recapitalisation or a Pacman defence, which use different mechanisms.
- ASelling or spinning off the most attractive asset or division so that the target becomes less appealing to the bidderCorrect
- BBorrowing heavily to buy back shares so the company becomes highly geared
- CInviting a friendly third party to make a competing offer at a higher price
- DMaking a counter-bid for the shares of the hostile bidder
Explanation
The crown jewel defence removes the asset the bidder most wants, reducing the value of the bid. Heavy borrowing for buybacks is a leveraged recapitalisation or 'scorched earth' style tactic, a competing friendly offer is a white knight, and a counter-bid is a Pacman defence.
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