Finally, perhaps are more self-serving interest is that managers want to retain their positions. This has obvious reasoning as managers do not want to lose rewards, power, control and ultimately be deemed a failure. .
Interestingly, noting the different parameters of UK and US takeover defence systems provides a strong foundation for understanding the ideology behind such defences. Rule 21 of the UK takeover code, known as the "non frustration principal" effectively prevents defensive board action that is in place that is deemed to frustrate the bid. Although it facilitates the replacement of incompetent management it means UK managerial bid defences are effectively undermined as soon as interest in their firm is formalised. This contrasts sharply with the US takeover defence, although in both the US and UK there is an Anglo-Saxon system of corporate governance, they believe that in the US defence mechanisms, if used properly can benefit shareholders. It can entrench managers and protect managers, but also those like Michael Jensen, and generally US perspectives, would argue that defences are indeed a good safeguard. .
There are two types of takeover bid defence; pre and post offer defences. The former describes strategies that are targeted at changing balance within the target to reinforce its position against the bidder; many of these defences require shareholder approval. Two mild forms of pre offer defence are fair price amendments and supermajority provisions. A super majority requires a bidder to acquire a very high percentage of shares, whereas a Fair price increases is designed to prevent two tier takeovers and increases the incentive for shareholders to tender an offer to receive a high price on their shares. Ruback (1987) calculates that overall these measures have significant effects on stock price with Super majority amendments typically resulting in five returns.
