Series 79 practice questionmediumAnti-Takeover Defenses
A 'crown jewel' defense involves the target company:
- AIncreasing its dividend to retain shareholders
- BSell key assets to deter the bidder✓ Correct answer
- CIssuing new shares exclusively to management
- DFiling for bankruptcy protection
Explanation
Why B — Sell key assets to deter the bidder
In a crown jewel defense, the target sells or grants lock-up options on its most valuable assets (the 'crown jewels') to a friendly third party, making the target less attractive to the hostile bidder. This strategy can be effective but carries significant legal risk, as courts may scrutinize the sale under fiduciary duty standards to ensure the board is acting in shareholders' best interests. Delaware courts have invalidated crown jewel lockups that were deemed to be preclusive of competing bids.
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