The scorched-earth defense is a form of

risk arbitrage Risk arbitrage, also known as merger arbitrage, is an investment strategy that speculates on the successful completion of mergers and acquisitions. An investor that employs this strategy is known as an arbitrageur. Risk arbitrage is a type of event ...

and anti-

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 t ...

strategy. When a 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 ...

implements this provision, it will make an effort to make itself unattractive to the hostile bidder. For example, a company may agree to liquidate or destroy all valuable assets, also called '' crown jewels'', or schedule

debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The d ...

repayment to be due immediately following a hostile takeover. In some cases, a scorched-earth defense may develop into an extreme anti-takeover defense called a '' poison pill''.

See also