Case breakdown: Movie Johnny English
The scene that you saw shows a Frenchman presenting showcasing the crown Jewels in the London tower. Johnny English (played by Rowan Atkinson) rolls his eyes in disdain as he isn’t impressed by this. Suddenly the lights go off in an attempt to steal the crown jewels.
In this blog, Learning Perspectives will explore the meaning of the Crown jewels strategy in finance.
What are Crown Jewels?
Jewels are considered the most precious part of the crown. Similarly, crown jewels in a corporation mean profitability, asset value, and future prospects. It could also include the company’s business lines. These are their most valuable aspect.
Crown Jewels’ defense strategy of a company is a defense against a hostile takeover. A takeover generally involves the acquisition of a certain block of equity capital of a company. Hostile takeover takes place when the acquiring company plans to take over the target company against the will of the target company.
A takeover can generally be done in the following ways:
Open market purchase:
The acquirer buys the shares of the listed company in the stock market. Hostile takeover generally starts in this way.
The acquirer buys shares of the target company from one or more existing shareholders who are likely to be promoter shareholders in negotiated transactions.
The acquirer buys shares of the target company through a preferential allotment of equity shares. Obviously, such an acquisition is a friendly acquisition. This gives the acquirer a strategic stake in the company.
Crown Jewel’s defense strategy is seen when the target company of the hostile takeover sells its crown jewels (most valuable assets) to a friendly party to become unattractive to the hostile bidder. This is the last resort of defense adopted by the company that is seen as a potential target.
Other anti-takeover defense strategies include making preferential allotment, white knight, amalgamating group companies, and effect creeping enhancements.
Preferential allotment method:
To ward off a takeover, companies may allot shares or convertible securities on a preferential basis to the promoter group so that its’ equity stake is enhanced.
Effective Creeping Enhancements:
The promoter group can raise its equity holdings by creeping enhancements, subject to limits, without invoking the provisions to make an open market offer.
Amalgamate group companies:
Two or more companies promoted by the same group may be amalgamated to form a larger company. Other things being equal, a larger company is less vulnerable to takeover in comparison to a smaller company.
A company that is about to be taken over may look for support and help from friends. They can be referred to as White Knight.