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 listed on a stock exchange, in contrast to ...
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 ...
to finance the acquisition. When the target
firm
A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...
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 is an American chemical corporation wholly owned subsidiary (since February 6, 2001) by Dow Chemical Company. Union Carbide produces chemicals and polymers that undergo one or more further conversions by customers befo ...
, and its design was upheld in Union Carbide’s litigation with
GAF
GAF may refer to:
Military
* General of the Air Force, US
* Ghana Armed Forces
* Guardia alla Frontiera, Italy
Other uses
* Gaf, a Perso-Arabic letter
* Gaf (Mandaeism), a demon of the Mandaean underworld
* GAF Materials Corporation, an Amer ...
.
See also
*
Economics
Economics () is the social science that studies the production, distribution, and consumption of goods and services.
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...
*
Mergers and Acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
*
Microeconomics
*
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 listed on a stock exchange, in contrast to ...
*
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 perf ...
Notes
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Business terms