Lobster Trap

A strategy used by a target firm to prevent a hostile takeover. A lobster trap anti-takeover strategy involves the target company passing a provision that prevents any shareholder, with an ownership stake of over 10%, from converting convertible securities into voting stock. This prevents large shareholders from adding to their voting stock position and facilitating the takeover of the target company. “Lobster Trap”, yet another colorful entry in the lexicon of anti-takeover terminology, is derived from the fact that such traps are aimed at catching large lobsters but not small ones.

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