Definition of “Say No to Defense”
A company’s “Just Say No” defense is an anti-hostile takeover strategy. If a bid-offer is not to their taste or liking, the board members have the authority to “simply say no” or reject it outright. Just to be clear: We are saying no to any takeover bids. The team’s management is using this defensive effort as a stalling strategy. Getting the buyer to increase their offer price might be useful in certain cases. Board members who insist on utilizing this strategy even when the acquirer is willing to pay a considerable premium over the current market price of the company’s stock may fail. This strategy may also be used against the wishes of the shareholders by the board.
“Just Say No” Defense’s Pros and Cons
Effortless and Straightforward to Use
To repel a hostile takeover, use the “Just Say No” approach. It’s simple and effective. The Board must simply weigh the advantages and disadvantages of the purchase proposal and determine whether or not it is feasible. Using this approach, if the offer isn’t favorable for the firm, they may just reject it.
Ensures that the company gets the best price possible
In order to guarantee that the firm and its shareholders get the best deal possible, the board must use a “Just Say No” defense. If they don’t think the takeover proposal is in the best interest of the firm, they may simply reject it. A side benefit of this stance is that it increases the management’s negotiating leverage. A higher offer price might help put pressure on the buyer. Another option is for the board to contact a potential buyer and offer to close the purchase at a price they deem acceptable. This might be a win-win situation for both the company and its stockholders.
The “Just Say No” Defense has its limits.
Investors’ interests may not be served by this course of action.
The “Just Say No” defensive strategy may or may not be correct, but it is always in the shareholders’ best interest. However, even when the purchasing party has offered a substantial premium over the current market price, the Board has full authority to reject a takeover deal. It is possible that the board does not like the plan because of the board’s vested interest, their incompetence in analyzing it, and other reasons. It’s also possible that they reject a proposal because they already have a long-term vision for the firm in mind. As a consequence, the company’s stockholders may lose out on money. The Board of Directors has the authority to reject a beneficial proposal for the company’s shareholders.
Self-interest takes precedence over the interests of the business.
For the sake of protecting their own interests, the board may simply say no to a takeover attempt. If a takeover effort is successful, the board will have to work with the new owner. If they don’t like the owner, they may decide to reject the offer outright. It’s possible that the members of the board are afraid that they will be fired once the takeover is finalized. Even if it’s for the benefit of the firm and its shareholders, this might push them to utilize the “Just Say No” argument.
An example of the “Just Say No” Defence
A hostile acquisition effort by Air Products & Chemicals was launched in 2010. “Just say no” argument was employed by Airgas’s Board of Directors to reject the $70 per share cash purchase offer. An offer for Airgas valued the company at close to $6 billion.
The board of Airgas argued that their firm created considerably better profits than the purchasing corporation by rejecting the deal. To put it another way, the transaction did not provide a good value for the firm or its stockholders.
A 38 percent premium was paid to the market price of Airgas shares on the offer day. Additionally, the offer price was 18 percent higher than its 52-week high. Shareholder benefits may have been gained by a takeover. A yes from the Board of Directors would have made stockholders wealthier, and they should have done so.
Air Products & Chemicals also had a reason for their higher proposal. They hoped that by integrating the two businesses, they would be able to save money in the long run. The combined growth of the two enterprises is greater than that of each of them alone.
Finally, the “Just Say No” argument worked out well for Airgas stockholders. As previously noted, Air Products & Chemicals’ offer price increased as a result of this defense. As a result of their negotiations, they agreed to pay $143 per share of company stock in 2015. As a result, stockholders received a $73 per share dividend.