Macaroni Defense

A macaroni defense is a tactic used by target firms of hostile takeovers; it is a type of shark repellent. Typically established in company bylaws by a Board of Directors, the strategy issues a large quantity of bonds that are redeemable above their face value in the event a company undergoes a merger. As a result, the acquisition price becomes prohibitively expensive and may seem economically unattractive.

This anti-takeover strategy is named “macaroni defense”, because the cost of takeover expands in cost similar to putting macaroni in boiling water, which tends to expand in size.

See also

• Mergers and Acquisitions
• Industrial Organization