Macaroni defense--

If I speak of Macaroni, my taste buds starts demanding it. but in business if you hear about Macaroni beware its not an invitaion for lunch or dinner. Rather it is a defensive tactic used by a corporation trying to defeat a takeover attempt by a raider or unfriendly bidder. The target corporation will issue a massive amount of bonds that must be redeemed at a mandatory higher redemption value if the company is taken over. The redemption value of these bonds therefore expands when the company is threatened-like macaroni when it is cooked-making the takeover prohibitively expensive to complete.

It is a type of shark repellent.Typically established in company bylaws by a Board of Directors, the strategy issues a large quantity of bonds that are redeemable above their face value in the event a company undergoes a merger. As a result, the acquisition price becomes prohibitively expensive and may seem economically unattractive.

To sum up, Macaroni Defense is an approach taken by a company that does not want to be taken over.This is a highly useful tactic, but the target company must be careful it doesn't issue so much debt that it cannot make the interest payments.