Lobster Trap

When we hear the term “lobster trap,” maybe we picture some sort of Deadliest Catch scenario involving rough seas and lots of swear words. But in the world of business takeovers, lobster traps have less to do with delicious crustaceans and more to do with corporate voting rights. (Though there might still be swear words.)

In the business world, a “lobster trap” is a strategy designed to prevent hostile takeovers. In a nutshell, the organization’s powers-that-be pass a provision that forbids anyone who owns more than 10% of the company’s stock (or bonds or warrants or other securities) to convert those securities into voting rights. The purpose here is to ensure that sneaky investors aiming to take us over by buying up all of our stock...can’t do it. They can buy the stock if they want to, but it won’t get them the voting power they’d need to actually take control.