The market for corporate control is undergoing a fundamental change: it is not only growing—M&A activity reached record levels in 2006, peaking at nearly $4 trillion globally—but also getting more aggressive. Last year more than 100 hostile transactions, valued at over $520 billion, were announced around the world (Exhibit 1). That’s three times the previous record, in 1999, according to data from Dealogic.

This activity is driven in part by a host of new players—including private-equity firms, hedge funds, and activist shareholders—that seem more and more willing to put companies in play at a moment’s notice. Further complicating the landscape, notably in Europe, is a recent flood of value-creating cross-border opportunities that have appeared as traditional barriers to hostile pursuits erode.¹

Amid this frenzy, many managers wonder uneasily how vulnerable their companies might be to takeover and contemplate fixes to ward off unwanted attention. Especially when they are under attack, their first reaction may not be the one that would create the most value: they often take last-minute defensive action to resist hostile bids at all costs. Typically, such responses aim only to protect a company’s independence, whether or not it’s in the best interests of shareholders.