Scorched-earth defense

The scorched-earth defense is employed by a takeover target to reduce its attractiveness to a hostile bidder. One approach is to sell off its most valuable assets in order to reduce its value. The firm may also take on a substantial amount of debt, or add a clause to its debt repayment schedules, mandating that the debt be paid in full immediately after a hostile takeover. By taking these actions, the organization hopes to remain independent. Even when this defense succeeds, it may seriously impair the long-term competitiveness and earning ability of the target company, which reduces the value of the business for its shareholders.

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