When shareholders own a company in the form of shares, they are also owners. This means that they have rights and can make decisions about the future of their company. If another company wants to acquire it, it needs to get permission from the shareholders and should ensure that this does not trigger a vote against these investors. A hostile takeover is an unfriendly acquisition. In the business world, a hostile takeover is when one company tries to buy another company against the wishes of the target company’s board or shareholders.
A hostile takeover usually happens when a company’s board rejects a proposed deal. In that case, the would-be acquirer could try to take over the company anyway, either by trying to get shareholders to vote for a deal or by trying to force a proxy fight. It is when an outsider tries to acquire a company without its approval, without offering a fair price for shares, or by force if necessary. In such cases, some companies may adopt defensive measures to avoid losing control over their business and assets. Such measures are usually triggered by agreements with key stakeholders like board members, management teams, or large shareholders who could become targets of a takeover bid because of their relevant role in the corporation.
A hostile takeover follows a predefined course of action. Depending on the circumstances and the company, this course may change. However, the general steps of a hostile takeover are the following:
While a hostile takeover can be a good opportunity for an investor, it can also be harmful to the target company. The target company must therefore be prepared to fight off a hostile takeover attempt. A team of lawyers, advisors, and public relations specialists must be in place to properly defend against a hostile takeover. To fight off a hostile takeover attempt, the target company must be prepared to endure a long process of uncertainty and stress. When investors are interested in acquiring a company, they also want to expand their portfolio and increase their market share. In most cases, they are willing to pay a hefty price to acquire the target company. This may be good for the shareholders of the target firm, but it is not necessarily good for the company itself. This is because the acquiring company will most likely restructure the target firm, cut costs and take other measures to increase its profitability.
The target company may call a shareholders’ meeting and obtain consent from the investors. Alternatively, the acquirer can obtain a waiver from the target’s shareholders to approve the deal. If a shareholder refuses to sign a waiver, the acquirer may have to buy out the shares at their current market value. Waivers can be especially challenging in the case of passive investors who do not actively follow the company’s activities or for those who are hard to find or unwilling to sign the waiver. It may also ask the shareholders to reject the offer and vote against it. The target company may hire a financial advisor to assess the acquisition offer and make a recommendation to the board. The target company may hire a legal advisor to review the acquisition offer and find ways to stop it or make it less attractive to the acquirer. The target company may sell assets that the acquirer values most, such as its intellectual property, patents, or trademarks. It can also sell off other assets to raise the money needed to reject the offer. The target company can also negotiate with the acquirer to lower its offer price or change conditions. It can also seek help from government agencies like the Federal Trade Commission.
Hostile takeovers are not as common as they used to be. Most of the mergers and acquisitions that take place today are friendly. This is partly because hostile takeovers are regulated more closely and partly because it is simply easier and cheaper to acquire a company by purchasing its stock than it used to be. In the 1980s, hostile takeovers accounted for about 40% of all mergers and acquisitions. By the early 2000s, that percentage had fallen to about 10%. This is because investors have become more sophisticated and know that hostile takeovers usually backfire. They usually do not acquire the target company and let it remain an independent company. An acquirer that makes a hostile takeover should ensure that they have enough capital to buy out the target company. The target company can also make a counteroffer to the acquirer to buy it out. The best way to protect a company from a hostile takeover is to make sure it is profitable. A profitable company is less likely to be acquired because there is no need to acquire it.