Listen to a Business English Dialogue About Macaroni defense
Lillian: Hi Serenity, have you ever heard of the term “macaroni defense” in business?
Serenity: No, I haven’t. What does it mean?
Lillian: The macaroni defense is a strategy used by a target company to make itself less attractive to an acquirer by issuing bonds with a high redemption value that would be activated in the event of a takeover.
Serenity: Oh, I see. So, it’s a way for a company to defend itself against a hostile takeover?
Lillian: Exactly! It’s named after the idea that the company becomes “hard to swallow” like overcooked macaroni.
Serenity: How does the macaroni defense work in practice?
Lillian: When an acquiring company sees the potential high cost of redeeming the bonds, it might reconsider its takeover bid, as it would increase the financial burden of the acquisition.
Serenity: Are there any drawbacks or risks associated with employing the macaroni defense?
Lillian: Yes, one potential drawback is that it could lead to increased borrowing costs for the target company and may also deter potential friendly acquirers.
Serenity: Can you give me an example of a company that has used the macaroni defense?
Lillian: One famous example is Revlon in the 1980s, when it issued high-yield “junk bonds” with a redemption premium to thwart a takeover attempt.
Serenity: Thanks for explaining, Lillian. The macaroni defense sounds like a creative strategy to protect against unwanted takeovers.
Lillian: You’re welcome, Serenity. It’s indeed an interesting tactic that companies can use to maintain control over their future.
