Definition of Hostile Takeover
What is a Hostile Takeover
A hostile takeover involves the unsolicited pursuit and acquisition of one company, known as the target company, by another company, known as the acquirer. It is considered hostile and unfriendly because the acquirer will usually look to acquire the target company against the wishes of company management through a proxy fight or tender offer.
There are several reasons why an acquirer would pursue a hostile takeover but one of the more popular reasons is that they believe the target company is undervalued and changes, such as changes in management, could increase shareholder value.
Hostile Takeover Strategies
The primary method of acquiring a controlling interest in the stock of a target company, without the approval of the board, is through a tender offer, which is an open offer to all shareholders to purchase their shares at a given price.
Once the acquirer has accumulated enough shares, it will begin to elect new directors to the board of directors. The new directors will represent the interests of the acquirer. This will effectively put the acquiring shareholder in control of the target company.
Creeping Tender Offer
In some cases, an acquirer may begin to slowly buy shares in the target company on the public market. Once the shareholder has accumulated enough shares, the acquirer can begin the process of replacing existing directors with directors who will support their objectives.
Another option in a hostile takeover would be the potential acquirer may attempt to convince existing shareholders to replace the current directors with directors that support the objectives of the acquirer.
A proxy contest is done by placing the name of the proposed director nominees for the acquirer in the shareholder proxy material. If the proxy material is successful, a majority of shareholders will elect the directors of the acquirer, who will then work to push the takeover plans.
In some cases, a takeover may appear to be friendly but, in reality, is a hostile attempt. A bear hug is where an acquirer will offer an acquisition price to the board that is far above the expected value. The board may be required to accept or endorse the offer to meet its fiduciary responsibilities and obligations to represent the best interest of the shareholders.
10 Hostile Takeover Defenses
- White Knight Defense
- White Squire Defense
- Gray Knight Defense
- Pac Man Defense
- Incentivizing Acquirer Defense
- Asset-Liability Defense
- Shark Repellant Defense
- Poison Pill Defense
- Macaroni Defense
- Kamikaze Defense
- Jonestown Defense
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