Hostile Takeover

Hostile Takeover

Hostile takeover: A hostile takeover allows a suitor to take over a target company whose management is unwilling to agree to a merger or takeover. It can be accomplished through either a tender offer or a proxy fight. They are typically bad news, as the employee morale of the target firm can quickly turn to animosity against the acquiring firm.

There are two commonly-used hostile takeover strategies: a tender offer or a proxy vote.

  • Tender offer: It is an offer to purchase shareholder’s shares in a company at a premium to the market price.
  • Proxy vote: It is the act of the acquirer company persuading existing shareholders to vote out the management of the target company so it will be easier to take over.

Defensive tactics: There are some defensive tactics available to resist the hostile takeover. Some of them are discussed below:

  1. Convince the target firm’s stockholders that the price being offered is too low.
  2. Raising antitrust issues in the hope that the Justice Department will intervene.
  3. Repurchasing stock in the open market in an effort to push the price above that being offered by the potential acquirer.
  4. The firm purchases through private negotiation a large block of stock at a premium from one or more shareholders to end a hostile takeover attempt by those shareholders.
  5. Finding a more acquirer and prompting it to compete with the initial hostile acquirer to take over the firm.
  6. An employment contract that guarantees extensive benefits to key management if they are removed from the company.