As a defensive maneuver, a firm issues deep-discount bonds that are redeemable at par in the event of an unfriendly takeover. These bonds are an example of:
A) greenmail.
B) a "scorched earth" policy.
C) a poison pill.
D) crown jewels.

Question

Quizplus · Accepted Answer

The deep-discount bonds that are redeemable at par in the event of an unfriendly takeover are known as a poison pill. This is a defensive measure taken by a firm to make itself less attractive to potential acquirers, thereby discouraging hostile takeovers. The idea behind issuing these bonds is to make the acquisition more expensive for the hostile bidder, who may have to pay a higher amount than the market value of the shares to acquire the company. This can make the acquisition less lucrative or even unprofitable, thereby deterring the acquirer from going ahead with the takeover.

As a Defensive Maneuver, a Firm Issues Deep-Discount Bonds That