Chastity Bond

AAA

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.

INVESTOPEDIA EXPLAINS '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. Shark Repellent

    Slang term for any one of a number of measures taken by a company ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Macaroni Defense

    An approach taken by a company that does not want to be taken ...
  4. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  5. Poison Pill

    A strategy used by corporations to discourage hostile takeovers. ...
  6. Surrender Period

    The amount of time an investor must wait until he or she can ...
Related Articles
  1. Fundamental Analysis

    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.
  2. Mutual Funds & ETFs

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  3. Bonds & Fixed Income

    Trademarks Of A Takeover Target

    These tips can lead you to little companies with big prospects.
  4. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  5. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  6. Economics

    What is a roll-up merger and why does it occur?

    Find out what a roll-up merger is and how it is executed. See why roll-ups might bring added efficiency and competition into a fragmented market.
  7. Bonds & Fixed Income

    How does face value differ from the price of a bond?

    Discover how bonds are traded as investment securities and understand the various terms used in bond trading, including par value, market price and yield.
  8. Bonds & Fixed Income

    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 in the secondary market.
  9. Trading Strategies

    How long will it take for a savings bond to reach its face value?

    Learn essential information about U.S. savings bonds along with an explanation of the unique characteristics of this popular investment instrument.
  10. Investing Basics

    Poison Pill

    A poison pill is a corporate maneuver put in place to try and prevent a hostile takeover. The target corporation uses this strategy to make its stock less attractive to the acquirer. This is ...

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center