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:
- Convince the target firm’s stockholders that the price being offered is too low.
- Raising antitrust issues in the hope that the Justice Department will intervene.
- Repurchasing stock in the open market in an effort to push the price above that being offered by the potential acquirer.
- 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.
- Finding a more acquirer and prompting it to compete with the initial hostile acquirer to take over the firm.
- An employment contract that guarantees extensive benefits to key management if they are removed from the company.