Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Jonestown Defense

What it is:

A Jonestown defense is a tactic to prevent hostile takeovers. It often results in the death of the target.

How it works (Example):

Let's say Company ABC makes a bid to buy Company XYZ. Company XYZ's founder, who is the chairman of the board, absolutely abhors Company ABC and refuses to sell the company to them. Company ABC goes directly to the Company XYZ shareholders and offers to buy their shares for a 10% premium.

Fearful that Company ABC may be successful in its efforts, Company XYZ intentionally hurts the value of the company by selling its key intellectual property to the founder, ceasing advertising, breaking its supplier agreements in order to slow down production, and laying off 2,000 workers. With key aspects of the company gutted, Company ABC drops its bid for Company XYZ, which is now a hollow, valueless shell of its former self.

Why it Matters:

The Jonestown defense is a reference to the Jonestown massacre, which took place in Guyana on November 18, 1978. Cult leader Jim Jones convinced 912 people to commit suicide after telling them the United States government was going to invade their compound and kill them anyway.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...