Crown Jewel Defense

Quick Facts

Type: Last-resort takeover defense

Mechanism: Sell or spin off most valuable assets

Risk: Permanently destroys company value

Legal scrutiny: May face fiduciary duty challenges

The crown jewel defense is a last-resort takeover defense strategy where a target company sells or spins off its most valuable assets—the "crown jewels"—to make itself less attractive to a hostile bidder. By removing what the acquirer actually wants, the target hopes the bidder will abandon the takeover attempt.

In Plain English

Imagine someone is trying to buy your house because they want the valuable antiques inside. A crown jewel defense is like selling those antiques to a friend before the buyer can close the deal. You've destroyed some of your own value, but you've also eliminated the buyer's motivation. It's a desperate move—and it often hurts you as much as it hurts the attacker.

How It Works

Hostile bidder announces intent to acquire company
Target identifies which assets the bidder most wants (the "crown jewels")
Target sells or spins off those assets to a friendly third party
Bidder loses interest because the target is now worth less
Deal collapses (but target company is permanently diminished)

What Are "Crown Jewels"?

A company's crown jewels are its most valuable or strategically important assets:

Profitable business units generating most of the revenue
Patents or intellectual property with significant value
Real estate holdings or physical assets
Key customer contracts or relationships
R&D teams or proprietary technology
Brand names or trademarks

Famous Examples

Suez vs. Veolia (2020-2021)

When French water giant Veolia launched a hostile bid for rival Suez, Suez attempted a crown jewel defense by placing its French water business into a Dutch foundation—effectively making it unsellable. The move sparked a bitter legal battle before the companies eventually reached a negotiated deal.

Burlington Northern vs. BNI (1980s)

Burlington Northern sold off valuable assets to make itself less attractive during a hostile takeover attempt, successfully deterring the bidder but leaving the company significantly smaller.

Why It's a Last Resort

The crown jewel defense has serious drawbacks:

Destroys shareholder value: You're selling valuable assets, often at below-market prices due to time pressure
Permanent damage: Unlike a poison pill, the assets are gone forever
Management conflict: Directors may face accusations of protecting their jobs, not shareholders
Legal risk: Courts may find the sale violates fiduciary duties
May not work: Bidder might proceed anyway with reduced offer

Legal Considerations

Revlon Duties

Under Delaware law, once a company is "for sale," the board's duty shifts to getting the best price for shareholders. A crown jewel defense that merely protects management (rather than shareholder value) may be struck down.

Lock-Up Agreements

Crown jewel sales often include "lock-up" provisions giving the friendly buyer options to purchase assets at favorable prices. Courts have invalidated lock-ups that are too favorable and effectively end an auction.

When It Might Make Sense

Despite the drawbacks, a crown jewel defense may be appropriate when:

The hostile bid significantly undervalues the company
Selling specific assets unlocks more value than the hostile offer
The target has a credible plan to operate without the sold assets
Shareholders would genuinely be better off