This thesis investigates the role of capital restructuring as a defensive strategy to takeovers. Capital restructuring is defined as issues of debt, payment of special dividends and share buy-backs. This defence has yet to be empirically examined by the literature and is expected to be particularly perceptible in the unique Australian regulatory context. Defensive restructuring is expected to act as a "filter." It deters bids of low quality, continues to encourage bids of sufficient value, and streamlines the takeover contest for those high quality bids remaining. This thesis considers a sample of all listed firms between 1997 and 2002 and employs the takeover prediction model from Palepu (1986).
Results indicate that bids are generally not deterred, but are encouraged as a result of capital restructuring. This result is due to firms undertaking restructuring when a bid is already likely, making it an ineffective deterrent as bids are placed anyway. However, defensive restructuring does increase the premium bidders are willing to pay for the target firm. It has no significant impact on streamlining the takeover contest. Therefore, capital restructuring is used as a takeover defence, but fulfils a different defensive role to the original "filtering" theory. Due to the lack of specific extant literature, this paper presents original findings in its investigation of this novel takeover defence.