ASSET STRIPPING The process of buying an undervalued company with the intent to sell off its assets for

a profit. The individual assets of the company, such as its equipment and property, may be more valuable than the company as a whole due to such factors as poor management or poor economic conditions. Investopedia explains 'Asset Stripping' For example, imagine that a company has three distinct businesses: trucking, golf clubs and clothing. If the value of the company is currently $100 million but another company believes that it can sell each of its three businesses to other companies for $50 million each, an asset stripping opportunity exists. The purchasing company will then purchase the threebusiness company for $100 million and sell each company off, potentially making $50 million.

A fictional example of asset stripping can be found in the 1987 film Wall Street. In this film, the ruthless investor Gordon Gekko, played by Michael Douglas, purchases the failing airline Blue Star, under the pretense that he will restructure the company and return it to profitability. However, we later learn that he intends to liquidate all of the company's assets.

SPINOFF OR DEMERGER A demerger is the opposite of a merger, involving the splitting up of one entity into two or more entities. An entity which has more than one business, may decide to hive off or spin off one of its businesses into a new entity. The shareholders of the original entity would generally receive shares of the new entity. If one of the businesses of a company is financially sick and the other business is financially sound, the sick business may be

demerged from the company. This facilitates the restructuring or sale of the sick business, without affecting the assets of the healthy business. Conversely, a demerger may also be undertaken for situating a lucrative business in a separate entity. A demerger, may be completed through a court process under the Merger Provisions, but could also be structured in a manner to avoid attracting the Merger Provisions.

'Black Knight' A company that makes a hostile takeover offer for a target company. In mergers and acquisitions, a black knight attempts a takeover that the target company deems unwelcomed. When a company is facing a hostile takeover by a black knight, a white knight may appear to offer a way to avoid the hostile takeover with a friendly takeover. 'Black Knight' Black knights attempt hostile takeovers of target firms. A white knight can help the target firm by offering terms for a friendly takeover. A gray knight is a company that offers an unsolicited bid, while another company is negotiating a takeover with the target firm. A yellow knight is a company that initiated a hostile takeover, but changes tactics during the process to negotiate on more agreeable terms. 'Poison Pill' A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills: 1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount.

2. A "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger. Poison Pill' 1. By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held by the acquirer. This makes the takeover attempt more difficult and more expensive. 2. An example of a flip-over is when shareholders gain the right to purchase the stock of the acquirer on a two-for-one basis in any subsequent merger.

'Suicide Pill' A defensive strategy by which a target company engages in an activity that might actually ruin the company rather than prevent the hostile takeover. Also known as the "Jonestown Defense."

'Greenmail' A situation in which a large block of stock is held by an unfriendly company. This forces the target company to repurchase the stock at a substantial premium to prevent a takeover. It is also known as a "bon voyage bonus" or a "goodbye kiss".

example Greenmail proved lucrative for investors such as T. Boone Pickens and Sir James Goldsmith during the 1980s. In the latter example, Goldsmith made $90 million from the Goodyear Tire and Rubber Company in the 1980s in this manner. Occidental Petroleum paid greenmail to David Murdock in 1984. The St. Regis Paper Company provides an example of greenmail. When an investor group led by Sir James Goldsmith acquired 8.6% stake in St. Regis and expressed interest in taking over the paper concern, the company agreed to repurchase the shares at a premium. Goldsmith's group acquired the shares for an average price of $35.50 per share, a total of $109 million. It sold its stake at $52 per share, netting a profit of $51 million. Shortly after the payoff in March 1984, St. Regis became the target of publisher Rupert Murdoch. St Regis turned to Champion International and agreed to a $1.84 billion takeover. Murdoch tendered his 5.6% stake in St. Regis to the Champion offer for a profit. (Source: J. Fred Weston, Mark L.Mitchell J. Harold Mulherin -- Takeovers, Restructuring, and Corporate Governance: page 529)