What is a hostile takeover?
What is a hostile takeover? It’s when a business changes hands against its wishes.
Hostile takeovers can be dramatic, newsworthy, and have massive fallouts.
Boards and executives take centre stage when one occurs because most, if not all, members of those two teams will be against the takeover, to begin with.
An attempt at a hostile takeover frequently launches a full-scale game of corporate attack and defence.
What is a hostile takeover?
It’s the acquisition of a company by a new owner against the wishes of the current owners, directors and management.
When we discuss hostile takeovers, we usually don’t limit ourselves to ones that have been successfully completed. Attempts at hostile takeovers also count.
Why do hostile takeovers happen?
Because a person – or corporate entity – sees some kind of financial benefit in acquiring a company, even if it means sweeping the rug from beneath the current management.
More specifically, some common reasons are:
- The acquirer believes the business is undervalued and thus is an excellent long-term investment.
- The acquirer is a competitor who wants access to the business’s expertise, patents, research, etc.
The acquirer is an activist investor (or group of them) who wants to change how the company is run.
How do hostile takeovers happen?
There are three main ways. In both, we can assume that the acquirer has already approached the company in a friendly way and been turned down.
The acquirer(s) simply purchase enough shares on the open market to gain control. This method may, however, alert the company’s board and management. In response, they could initiate defence tactics.
Tender offers are offers to buy all or most of shareholders’ stakes in a corporation. Often, the amount is public knowledge, business journalists will widely report it, and the figure is a premium on the shares’ market value.
In these cases, the acquirer bypasses the board and management (who have already said ‘no’) and goes straight to the shareholders, who may be more sympathetic to the buyout.
Proxies are agents legally allowed to act on behalf of another in business.
With hostile takeovers, the acquirer will try and convince enough shareholders to appoint them as proxies. The target company may try and convince shareholders against it simultaneously.
If the acquirer wins enough shareholders’ confidence to act as a proxy, they can use that voting power to accept any takeover offer.
What should corporate leaders know about hostile takeovers?
The most important thing about hostile takeovers is that, as a director or executive, you can prevent them.
If you’re serious about stopping the company from falling into different hands, various options are open to you.
You can read more about them here, alongside some examples.