Legal Definitions - porcupine provision

A porcupine provision is a specific rule or clause written into a company's foundational documents, such as its corporate charter or bylaws. Its primary purpose is to make the company less attractive or more difficult to acquire for an unwelcome suitor, thereby protecting the company from a hostile takeover unless its own board of directors agrees to the acquisition. Like a porcupine's quills, these provisions are designed to make the company "prickly" to potential acquirers, deterring unwanted advances.

• Example 1: Staggered Board Structure

  Imagine "TechInnovate Inc.," a rapidly growing software company, fears a larger competitor might try to acquire them at a low price before their full market potential is realized. To prevent this, TechInnovate's board amends its bylaws to implement a "staggered board" structure. This means that only a fraction of the board members (for instance, one-third) are up for election each year, with each director serving a multi-year term. This makes it impossible for an acquiring company to immediately gain control of the board, even if they manage to buy a majority of shares, as they would have to wait multiple years to replace all directors. This provision acts as a porcupine provision because it significantly delays an unwelcome acquirer from taking over the company's governance without the current board's approval, making a hostile takeover much more challenging and time-consuming.

• Example 2: Supermajority Vote Requirement

  "Evergreen Holdings," a family-founded investment firm with a strong desire to maintain its independence and long-term strategic vision, includes a provision in its corporate charter requiring a "supermajority vote" (e.g., 75% or 80% of shareholders) to approve any merger, acquisition, or significant asset sale, rather than a simple majority (50% + 1). This makes it substantially harder for an external entity to push through a takeover bid without widespread shareholder and, implicitly, board support, as the board often influences shareholder voting. This is a porcupine provision because it creates a high hurdle for an acquisition, effectively preventing a takeover that doesn't have overwhelming internal consensus, which the board would typically guide and endorse.

• Example 3: Fair Price Provision

  "BioGenius Pharma," a pharmaceutical company heavily invested in long-term research and development, wants to protect its strategic direction from short-sighted hostile takeovers that might prioritize immediate profits over innovation. Its bylaws include a "fair price provision." This clause dictates that if an acquirer buys a certain percentage of shares (e.g., 25%) without the board's prior approval, any subsequent offer for the remaining shares must meet a predetermined minimum price. This minimum price is often tied to the highest price paid by the acquirer for shares in the open market during a specific period, or a valuation formula. This discourages "two-tiered" tender offers where an acquirer buys a controlling stake at a high price and then offers a lower price for the remaining shares. This serves as a porcupine provision by making an unapproved takeover financially unattractive or prohibitively expensive, thereby requiring the board's consent for a more favorable and equitable acquisition process.