NEW YORK — The giant investment firm Merrill Lynch & Co. adopted a "poison pill" takeover defense Wednesday but said the move was a response to the current takeover environment rather than to any specific threats.
The firm's directors also voted to increase Merrill Lynch's authority to repurchase its own common stock by 5 million shares, in addition to the nearly 2.6 million shares authorized under a previous buyback program.
Merrill Lynch's anti-takeover plan is aimed at making a hostile takeover prohibitively expensive by giving Merrill Lynch shareholders the right to buy a new issue of Merrill Lynch stock or shares in a potential acquirer for half the market price.
The plan would take effect if a person or group acquired 20% or more of Merrill Lynch's outstanding common shares or launched a tender or exchange offer that would give it control of 30% or more of the company's shares. However, Merrill Lynch's board could negate the poison pill if it supported the acquisition bid.
In a news release, Merrill Lynch said the plan was "designed to deter coercive takeover tactics and help prevent situations where one group of stockholders may derive a benefit not available to others."
Planned for Some Time
A Merrill Lynch spokesman, Fred Yager, said the plan was a response to the wave of often hostile takeovers of recent years, where in many cases shareholders were pressured to sell their stock at unfairly low prices and the acquired company sometimes was left in a weakened position.
He said the plan had been in the works "for some time now" and was not adopted in response to a threatened takeover.
Analysts have speculated for some time that big Wall Street firms could become targets of hostile acquirers, especially because the October stock market crash sharply reduced the share prices of most major investment houses.
Merrill Lynch stock, for example, closed at $21.375 a share Wednesday, up $1.125 from Tuesday's close but well below its 52-week high of $46.75. The company has about 109.8 million common shares outstanding.
In addition, stock prices of securities firms have weakened due to prospects of declining profitability stemming from two sharp downturns in the bond market earlier this year, increasing competition in the global markets and bloated overhead expenses following years of torrid growth.
Recently, E. F. Hutton Group agreed to be acquired by Shearson Lehman Bros. Holdings in a $960-million merger that Hutton deemed necessary for its survival.
Merrill Lynch itself announced Monday that it planned to sharply cut expenses in 1988, through an undetermined number of layoffs, cuts in bonuses and tightening of salaries, in order to improve profitability and competitiveness.
Speculation over potential hostile takeovers on Wall Street was aided in late September when Ronald O. Perelman, chairman of Revlon Group, attempted to buy a 12% stake in the venerable investment firm Salomon Bros.
Salomon had reacquired the stock from one shareholder and indicated that it would sell the stake to Nebraska investor Warren E. Buffett, regarded as an ally of management, for $700 million.