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LogoutEven if the whole board of directors (B of D) agrees that a scorched earth strategy is worthwhile, they will still have to overcome several potentially severe challenges. The hostile business could be able to get an injunction against the company’s defense efforts, preventing the board from halting the takeover offer.
For example, a steel corporation may threaten to buy a manufacturer whose components are being sued for being of low quality.
In this instance, the target business would want to buy the future liabilities connected with any litigation settlement in order to burden the new, merged company with those liabilities and make it undesirable to hostile bidders. However, the target company’s decision to potentially damage itself isn’t always entirely up to them. In this situation, the hostile bidder may be able to get a court order to block the transaction, thereby thwarting the steel company’s scorched earth approach.