Posted in Finance, Accounting and Economics Terms, Total Reads: 391
Sandbag is one of the many anti-takeover defence mechanisms that can be adopted by corporations in the case of an acquisition bid. In most cases, the acquiring company is not favourable to the target company and hence the target company will resort to any anti-takeover defence mechanisms to discourage the bidding company. Sandbag takeover defense involves being in prolonged discussions with the unwelcome bidder and delaying this process as long as possible in hope that a white knight will surface up protecting them from the unwelcome bidder.
Target companies generally have a resistance to selling off. This may happen even if they are in a bad shape. This is because of several reasons such as – the acquisition price, terms and conditions are not favourable for the target company’s shareholders/employees etc., company owners generally have a high level of attachment with the company and would not like to lose ownership/control of the business, they feel that things will turnaround, to push up the premiums, belief that there may be a better buyer who is more able to run the company more efficiently etc.
In case of Corporate finance, it refers to the tactic employed a company while releasing its Quarterly/Annual results and earnings guidance in such a way that its stock price appreciates. The company will report their guidance forecasts for next quarter/financial year less than what they actually predict according to the present market condition so that when the next period earnings results is released, it will exceed the expectations when in fact it has not actually exceeded. This will shore up the stock price of the company which will lead the security being overpriced.