“Just Say No” Defense

2000 Investor Limit

DEFINITION of the Just Say No Defense

A “just say no” defense is a strategy used by companies to discourage hostile takeovers in which board members flatly reject a takeover offer. The legality of a refusal to defend may depend on whether the target company has a long-term strategy which it pursues, which may include a merger with a company other than that which makes the takeover offer, or if the tender offer undervalues ​​the company.

The term refers to the “Just Say No” anti-drug campaign of the early 1980s and repeated by former First Lady Nancy Reagan as part of an advocacy campaign against drug use. Early use of the term referred to NCR Corp’s takeover defense. against AT&T in 1990. After rejecting the original $ 6.08 billion offer to buy from AT&T, NCR’s board of directors said it intended to “just say no” . to the phone giant.


Just to say that no defense is not necessarily in the best interests of shareholders, as members of the board of directors can use it even if an offer is made at a significant premium compared to the current stock price.

Example of a Just Say No Defense

The Paramount Communications case against Time, Inc. helped establish the just saying no defense as a viable anti-takeover strategy. In the case, Time, Inc. was about to merge with Warner Communications, but received an offer from Paramount that its board of directors rejected because the publishing company had negotiated a long-term plan with Warner. In July 1989 the matter was heard by the Court of Chancery of Wilmington, in Del. In two previous cases, the courts of Delaware had established precedents for the actions of boards of directors in mergers and acquisitions. In the 1986 Revlon case, the Delaware Supreme Court ruled that if the board of directors decided to sell a business, it should accept the highest offer and show no favoritism. In a 1985 Unocal case, the court ruled that directors who defended their business against a thief could only respond reasonably.

The judge supported Time’s board of directors as the company’s trustees in this case, although the shareholders could have preferred to accept Paramount’s offer. He wrote that corporate law does not require directors to follow the wishes of the majority of the shares. In support of his decision on the Time-Warner merger, he wrote, “In fact, it is the directors, not the shareholders, who are required to manage the business.” On appeal, the Delaware Supreme Court affirmed the unanimous decision.

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