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Bloopers & Blunders: Anti-Takeover Insurance Quotation In announcing a new anti-takeover insurance product, Aon Group Corp.’s Chairman, Arthur Quern, was quoted by CNNfn (May 18, 1996) as saying: "This coverage product will serve as a financial tool to preserve or enhance shareholder value in the face of a hostile-takeover attempt or a proxy contest. A company can now buy insurance in $ 1 million increments for a cost of $22,500 per $1 million of coverage. The insurance policy is intended to reduce costs associated with "hiring lawyers, accountants and paying other expenses to defend themselves against a hostile challenge," adds the source. Answer Anti-takeover mechanisms such as this one are aimed at protecting management from losing their jobs in the event of a hostile takeover. Corporate takeovers are market-driven forces that indirectly pressure management into acting in the best interest of shareholders. What the anti-takeover insurance does in effect is eliminate the forces that are in the interest of shareholders. Thus, this cannot enhance value; rather, it has the potential of destroying value for the companies whose managers are not working to ensure the best interest of their shareholders.
Alex Tajirian |
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