Macaroni Defense

Written by:
Image
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 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated August 5, 2020

What is the Macaroni Defense?

Companies adopt a macaroni defense by issuing bonds that are redeemable at a high price in the event of a change in control.

How Does the Macaroni Defense Work?

For example, let's assume that Company ABC wants to buy Company XYZ. Company XYZ doesn't want to sell because in the board's opinion Company ABC makes terrible products and will run the company's brand into the ground. To thwart the effort, Company XYZ issues $10 million of bonds that are redeemable for 150% of par value if there is a change in control at Company XYZ. So, a person who buys a Company XYZ bond with a $1,000 face value would have the right to redeem that bond for $1,500 if Company ABC buys Company XYZ. Company ABC, seeing this redemption as a cost on top of buying Company XYZ, backs off the deal.

Why Does the Macaroni Defense Matter?

Like pasta in water, the bonds involved in a macaroni defense expand when things get hot. For potential acquirers, this can make a deal very hard to swallow.

Ask an Expert about Macaroni Defense
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Macaroni Defense.
Be the first to ask a question

If you have a question about Macaroni Defense, then please ask Paul.

Ask a question

Read this next

Don't Know a Financial Term?
Search our library of 4,000+ terms
 - profile
Ask an Expert about Macaroni Defense

By submitting this form you agree with our Privacy Policy

Share
close