A pension parachute is a form of
poison pill that prevents the raiding firm of a hostile
takeover
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are publicly listed, in contrast to the acquisi ...
from utilizing the pension
assets
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...
to finance the acquisition. When the target
firm
A company, abbreviated as co., is a Legal personality, legal entity representing an association of legal people, whether Natural person, natural, Juridical person, juridical or a mixture of both, with a specific objective. Company members ...
is threatened by an acquirer, the pension plan assets are only available to benefit the pension plan participants.
In corporate governance, the pension parachute protects the surplus cash in the pension fund of the target from unfriendly acquirers; the funds remain the property of the plan's participants in the target company.
The law firm of
Kelley Drye & Warren
Kelley Drye & Warren LLP is an international law firm founded in 1836 and is one of the oldest firms in the United States. It operates in New York; Washington; Los Angeles; Chicago; Stamford, Connecticut; Parsippany, New Jersey; Houston, Texas; ...
claims to be the pioneers of the "pension parachute". Their first pension parachute was implemented for
Union Carbide
Union Carbide Corporation (UCC) is an American chemical company headquartered in Seadrift, Texas. It has been a wholly owned subsidiary of Dow Chemical Company since 2001. Union Carbide produces chemicals and polymers that undergo one or more f ...
, and its design was upheld in Union Carbide's litigation with
GAF
Gaf (; ), is the name of different Perso-Arabic alphabet, Perso-Arabic letters, all representing . They are all derived from the letter Kaph, kāf, with additional diacritics, such as dots and lines. In name and shape, it is a variant of ''kaph ...
.
See also
*
Economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and interac ...
*
Mergers and Acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another entity. They may happen through direct absorpt ...
*
Microeconomics
Microeconomics is a branch of economics that studies the behavior of individuals and Theory of the firm, firms in making decisions regarding the allocation of scarcity, scarce resources and the interactions among these individuals and firms. M ...
*
Takeover
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are publicly listed, in contrast to the acquisi ...
*
Industrial organization
In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the per ...
Notes
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Business terms
Takeover defense