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官方开奖结果体彩网:hostile takeover, that raises the cost of the acquis🐼ition to t𝓀he 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 c☂ompletion of a trigger event 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 become prohibitively expensive to the acquirer.&n𒅌bsp;

This anti-takeover measure is conceptually similar to another strategy known as the 澳洲幸运5官方开奖结果体彩网: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 that the acquirer m🎶ust pay. The only difference is that chastity bonds ma💞ture at par, whereas bonds issued in 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官方开奖结果体彩网:common stock of the target company include 澳洲幸运5官方开奖结果体彩网:poison pills, shareholder rights plans which enable existing shareholders to purch🌞ase additional shares of the target company at a discount, making 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 p𓆏otential 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官方开奖结果体彩网:balance sheet could, over the long term, make a company more vulnerable to a future hostile acquisition as in its weakened state it may lack the financial str⛎ength to remain inde🅘pendent.