Pension parachute

Definition:

A form of poison pill providing that in the event of a hostile takeover attempt, any excess pension plan assets can be used to benefit pension plan participants. This prevents the raiding firm from using the pension assets to finance the takeover. In the context of corporate governance, these provisions prevent an acquirer from using surplus cash in the pension fund of the target in order to finance an acquisition. Surplus funds are required to remain the property of the pension fund and to be used for plan participants' benefits.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Reverse conversion

A technique in which brokerage firms earn interest on the stocks they hold for their customers by selling the short and investing the proceeds in money market accounts. The short positions are hedged... Read More

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