Melvin was attempting to gain control of Western Wood Products until he realized that the existing shareholders in the firm had the right to purchase additional shares at a below-market price given his hostile takeover attempt. Thus, Melvin decided to forgo investing in this firm. What term applies to the tactic used by Western Wood Products to stave off this takeover attempt?

Question

Quizplus · Accepted Answer

The tactic used by Western Wood Products is called a "share rights plan," also known as a "poison pill." This is a defensive tactic where existing shareholders have the right to purchase additional shares at a below-market price, which dilutes the value of the shares of the hostile bidder. This makes the takeover attempt more expensive and less attractive. The other options listed (Pac-man defense, Bear hug, Golden parachute provision, and Greenmail provision) are also defensive tactics used in takeover attempts, but they do not apply to this specific scenario.

Melvin Was Attempting to Gain Control of Western Wood Products