Chastity Bond

DEFINITION of 'Chastity Bond'

A bond that matures immediately upon the completion of a trigger event such as a takeover or a change in control of the issuer. A chastity bond is one of a number of measures - many of which have equally colorful names - that are designed to prevent the hostile takeover of a company. The term is probably derived from the fact that its objective is to prevent unwarranted attention from unwelcome corporate suitors.

BREAKING DOWN 'Chastity Bond'

Chastity bonds are intended to dissuade hostile takeovers, based on the premise that if a large issue of these bonds mature and become payable upon completion of a takeover, the overall purchase price may become prohibitively expensive to the acquirer.


This anti-takeover measure is conceptually similar to another strategy known as the Macaroni Defense, in which a large issue of bonds must be redeemed upon a takeover or change of control, thereby expanding (like macaroni) the purchase price that the acquirer must pay. The only difference is that chastity bonds mature at par, whereas bonds issued in a Macaroni Defense are redeemable at a substantial premium.


RELATED TERMS
  1. "Just Say No" Defense

    A strategy used by corporations to discourage hostile takeovers ...
  2. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  3. Macaroni Defense

    An approach taken by a company that does not want to be taken ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for ...
  6. Anti-Takeover Statute

    A set of state regulations that prevent or deter companies from ...
Related Articles
  1. Investing

    What is a Takeover?

    A takeover happens when one company makes a bid to acquire a target company.
  2. Investing

    Warding Off Hostile Takeovers

    The purpose of this article is to provide a general overview of hostile corporate takeovers, while highlighting a general course of action against such activity. This article provides basic information ...
  3. Investing

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  4. Investing

    Reverse Takeover

    Learn more about this type of takeover and how companies use it to avoid IPOs.
  5. Trading

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  6. Markets

    How To Invest In Corporate Bonds

    Understand the basics of corporate bonds to increase your chances of positive returns.
  7. Personal Finance

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  8. Trading

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  9. Investing

    Hostile Takeover

    A hostile takeovers is an unfriendly acquisition attempt by a company or raider that is strongly resisted by the management and the board of directors of the target firm. Learn more about the ...
  10. Financial Advisor

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
RELATED FAQS
  1. What happens to the shares of a company that has been the object of a hostile takeover?

    Learn about the effect on the share price of companies that are targets of hostile takeovers, which are tactics used by famed ... Read Answer >>
  2. What is the difference between a hostile takeover and a friendly takeover?

    Learn about the difference between a hostile takeover and a friendly takeover, and understand how proxy fights and tender ... Read Answer >>
  3. Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate ... Read Answer >>
  4. What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields ... Read Answer >>
  5. What's the difference between a merger and a hostile takeover?

    Understand the difference between a merger and a hostile takeover, including the different ways one company can acquire another, ... Read Answer >>
  6. How can a company resist a hostile takeover?

    Learn about some of the defense strategies a public company's board of directors might employ to prevent a hostile bidder ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center