Question

Auto Mart, a large auto parts distributor, is attempting to acquire Rubber Meets the Road, a tire manufacturer. However, Rubber Meets the Road does not want to be taken over, so it issues a poison pill to try to head off the hostile takeover attempt. What does this entail

Answer 1

Answer:

The Rubber Meets the Road has issued shares at discount to market price to its shareholders (Right Issue)

Explanation:

These tactics are used by the company who wants to defend itself from the acquirer because they think they will damage the company values, culture, restructure business processes and change in people who work and are part of the organization. In other words they think are a family and will loose each other and the associated benefits now they are enjoying so what they do is they upper management issues the rights to its existing shareholders at discount to market value.

The investment doesnot seems attractive as the benefit are no more if the acquirer pays extra dollars to buy the 50% shares which have been increased due to right issue. So the statement hostile takeover means the defending strategy of the firm that the acquirer wants to acquire its control by buying more than 50% shares.