What is the Jonestown Defense?

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

How Does the Jonestown Defense Work?

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 Does the Jonestown Defense Matter?

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.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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