Jonestown Defense
Encyclopedia
The Jonestown defense is an extreme corporation
defense against hostile takeover
s. In this strategy, the target firm engages in tactics that might threaten the firm’s existence to thwart an imposing acquirer’s bids. This is also known as a “suicide pill
”, and is an extreme version of the poison pill
.
The term refers to the 1978 Jonestown
mass suicide in Guyana
, where Jim Jones
led the members of the Peoples Temple
(a religious cult) to kill themselves.
Jonestown Defense maneuvers are usually more extreme versions of existing tactics; share buybacks (which increase stock prices and decrease public equity at the cost of cash or debt financing), Crown Jewel maneuvers (selling off attractive assets at a discount to anyone except the acquirer) and similar. The main difference is that they are done to such an extreme that they threaten the company's livelihood. Companies attempting such maneuvers may thus find themselves insolvent, and in a position where they cannot resist continued takeover bids. The flip side is that the tactics reduce the company's value to potential buyers such that, unless the firm still possesses intangible assets (like a brand name or other intellectual property) that are valuable to the acquirer, the acquisition of this now-troubled firm becomes extremely unappealing.
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
defense against hostile takeover
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
s. In this strategy, the target firm engages in tactics that might threaten the firm’s existence to thwart an imposing acquirer’s bids. This is also known as a “suicide pill
Suicide pill
A Cyanide pill is a pill, capsule, ampoule or tablet containing a fatally poisonous substance that a person ingests deliberately in order to quickly cause his/her own life to end...
”, and is an extreme version of the poison pill
Poison pill
A shareholder rights plan, colloquially known as a "poison pill", or simply "the pill" is a type of defensive tactic used by a corporation's board of directors against a takeover...
.
The term refers to the 1978 Jonestown
Jonestown
Jonestown was the informal name for the Peoples Temple Agricultural Project, an intentional community in northwestern Guyana formed by the Peoples Temple led by Jim Jones. It became internationally notorious when, on November 18, 1978, 918 people died in the settlement as well as in a nearby...
mass suicide in Guyana
Guyana
Guyana , officially the Co-operative Republic of Guyana, previously the colony of British Guiana, is a sovereign state on the northern coast of South America that is culturally part of the Anglophone Caribbean. Guyana was a former colony of the Dutch and of the British...
, where Jim Jones
Jim Jones
James Warren "Jim" Jones was the founder and leader of the Peoples Temple, which is best known for the November 18, 1978 mass suicide of 909 Temple members in Jonestown, Guyana along with the killings of five other people at a nearby airstrip.Jones was born in Indiana and started the Temple in...
led the members of the Peoples Temple
Peoples Temple
Peoples Temple was a religious organization founded in 1955 by Jim Jones that, by the mid-1970s, included over a dozen locations in California including its headquarters in San Francisco...
(a religious cult) to kill themselves.
Jonestown Defense maneuvers are usually more extreme versions of existing tactics; share buybacks (which increase stock prices and decrease public equity at the cost of cash or debt financing), Crown Jewel maneuvers (selling off attractive assets at a discount to anyone except the acquirer) and similar. The main difference is that they are done to such an extreme that they threaten the company's livelihood. Companies attempting such maneuvers may thus find themselves insolvent, and in a position where they cannot resist continued takeover bids. The flip side is that the tactics reduce the company's value to potential buyers such that, unless the firm still possesses intangible assets (like a brand name or other intellectual property) that are valuable to the acquirer, the acquisition of this now-troubled firm becomes extremely unappealing.