What is Chastity Bond?

A chastity bond is a corporate bond that matures, at par, when triggered by an event, such as a 澳洲幸运5开奖号码历史查询:hostile takeover, that raises 🐻the cost of the acquisitio𝄹n to the acquirer.

Understanding Chastity Bond

A chastity bond is one of a number of measures intended to prevent the hostile takeover of a company. This type of bond matures immediately upon the completion of a trigger ev🅰ent such as a takeover or a change in control of the issuer. The📖 term likely comes from the fact that its objective is to prevent unwarranted attention from unwelcome corporate suitors.

Chastity bonds are corporate bonds intended to dissuade hostile takeovers, based on the premise that if a large issue of these bonds mature and become🧸 payable upon completion of a takeover, the overall purchase price may beco🐼me prohibitively expensive to the acquirer. 

This anti-takeover measure is conceptually similar to another strategy known as the 澳洲幸运5开奖号码历史查询:Macaroni Defense, in which a large issue of bonds must be redeemed upon a takeover or change of control, thereby expanding (like macaroni) the purchase price thatꦰ the acquirer must pay. The only difference is that chastity bonds mature at par, whereas bonds issued i🐼n a Macaroni Defense are redeemable at a substantial premium.

Chastity bonds act similarly to other tactics meant to block a takeover as they inflate the value of the target company, making a deal more expensive for the acquirer. Similar strategies involving 澳洲幸运5开奖号码历史查询:common stock of the target company include 澳洲幸运5开奖号码历史查询:poison pills, shareholder rights plans which enable existing shareholders to purchase additional shares of the target company at a discount, makin💫g the deal more expensive, or additional shares of acquiring company at a discount, diluting the value of the combined company after a completed acquisition. 

Risks of a Chastity Bond Defense

Chastity bonds are typically issued by a targeted company when a potential acquirer makes public their purchase intentions. These bonds can be an effective deterrent if the hostile bid is made at the best offer price of a potential acquirer. However, if the initial bid is well below what the acquiring company is ultimately willing to pay, the additional deal cost from the chastity bonds may not make a🌺 difference.  

While increasing the debt obligations of a company may deter a hostile takeover bid, should it succeed the strategy would saddle the existing company with additional debt. Ironically, the addition of liabilities to the 澳洲幸运5开奖号码历史查询:balance sheet could, over the long term, make a com🉐pany more vulnerable to a future hostile acquisition as in its weakened state it may lack the financial strength to remain independent.