What Are Crown Jewels?
Crown jewels refer to the most valuable unit(s) of a corporation as defined by characteristics such as profitability, asset value, and future prospects. This could be the line of business that produces the most popular item that a company sells, or perhaps the department that holds all of the intellectual property for a project that is thought to be of great value in the future once it is finished.
- The crown jewels are a company's most prized and valuable assets.
- The crown jewels may be physical assets or intangibles like patents or intellectual property and trade secrets.
- The crown jewel defense is a hostile takeover defense that involves the sale of the target firm's crown jewels to make it less desirable to the acquirer.
Understanding Crown Jewels
Crown jewels are often the most valuable part of a company. When there is a takeover attempt by another company, often the goal of the acquiring company will be to obtain the information and operations that make up the crown jewels of the target. This happens so frequently that there is a takeover defense strategy named the "crown jewel defense."
The crown jewels of a corporation are heavily guarded, only allowing certain people access to trade secrets and proprietary information, as these operations can be seen as highly distinctive from competitors' abilities and are often worth a lot of money.
A company can employ this crown jewel defense by creating anti-takeover clauses that compel the sale of their crown jewels if a hostile takeover occurs. The thinking is that this should deter would-be acquirers from attempting to take the firm over, since the acquirer would not receive the desired operations or information if they proceeded with the takeover.
The origins of this term are derived from the most valuable and important treasures that sovereigns possessed.
Sale of Crown Jewels
The sale of the crown jewels of a company is often a drastic attempt to ward off a hostile takeover or relieve the severe financial stress of a debt burden. In either case, a company's best operating assets are sold, essentially changing the entire nature of the company and leaving it with a different set of growth prospects and shareholder support.
When a company is too overburdened with debt and is in danger of defaulting on payments, it may be forced to sell crown jewels to relieve the stress and avoid possible bankruptcy. Other operating assets or divisions of the company may not fetch high enough prices to remove the threat that an overleveraged balance sheet poses. The crown jewels must be sold so that the company survives as a going concern.
The sale of crown jewels will generally leave the remnants of a company in less attractive or slower-growing markets. There may be a decrease in the brand equity value of the company, and diminished sales and earnings growth prospects resulting from the loss of talented management, product innovation, manufacturing efficiency, or geographic markets. Shareholders who invested because of the crown jewels would typically flee if they are sold.