Whitemail
Candlefocus EditorThe goal of whitemail is to ensure that the target company owns enough votes to fend off the acquisition, enabling them to maintain their independence. By issuing a large number of new shares to friendly shareholders, the voting power of the hostile acquirer is weakened. This is because their votes will then be diluted in comparison to the votes of the new friendly shares. If a majority of the voting power is secured through this strategy, the target company will be able to thwart the hostile takeover bid and remain independent.
The company issuing the newly issued shares may also be entitled to re-acquire them after the hostile takeover bid is defeated, which can be a valuable benefit to the company. Re-acquiring the new shares enables the company to regain voting rights over stock it once had, without having to expand its capitol base or take on additional debt. This can be a meaningfully cost-effective solution for the company and serves as an incentive for friendly shareholders to participate in the whitemail defense strategy.
Whilitemail is becoming an increasingly popular strategy for companies looking to fend off hostile takeovers, especially in light of the greater availability of capital in today's markets. While there is sometimes great uncertainty as to whether or not the strategy will be successful, there can be great rewards if done correctly. Companies successfully utilizing this strategy can continue to remain independent, while re-gaining voting rights and avoiding hefty costs associated with other takeover defense strategies.