A hostile bid is a precise method of engaging in a takeover attempt where the acquirer bypasses the target firm’s uninterested or dissenting management and goes directly to its shareholders. Typically presented via a tender offer, this strategy involves offering to purchase the common shares of the target company at a notable premium.
Key Insights:
- Hostile bids represent takeover proposals delivered straight to shareholders due to management’s rejection.
- These bids can instigate a proxy battle, where the acquiring entity endeavours to replace current management.
- Contrastingly, a friendly bid is welcomed by management, leading to a smoother takeover process.
The Intricacies of Hostile Bids
Hostile bids can modify the organizational structure drastically. When a company’s board resists the merger, a proxy fight may ensue. In such scenarios, the acquirer attempts to persuade shareholders to replace existing management. Notably, activist investors often leverage hostile bids to enforce buyouts and takeovers. A renowned example includes activist investor Carl Icahn’s multiple hostile attempts to acquire Clorox in 2011.
Engaging Shareholders
To sway shareholder votes, both the acquirer and the target company employ various solicitations tactics. Shareholders receive a Schedule 14A incorporating financial and other pivotal information about the target and the proposed acquisition details. Often, the acquirer hires external proxy solicitation firms to compile a comprehensive list of shareholders to present their case.
These firms may contact shareholders through calls or written communications, explicating why the proposed changes are beneficial and how the deal could potentially enhance shareholder wealth in the long term.
Votes are collected and aggregated by entities like a stock transfer agent or brokerage, and sent to the corporate secretary ahead of the shareholders’ meeting. Proxy solicitors might scrutinize and contest ambiguous votes.
Hostile Bid vs Friendly Bid
A friendly bid is endorsed by management. Management and the board consider it a friendly bid when an offer is welcomed. Here, the acquiring company usually enjoys better access to internal company details. Conversely, with a hostile bid, the acquiring entity confronts resistance and limited access to insider information from the target management.
Illustrative Example of a Hostile Bid
A noteworthy instance occurred in October 2010 when French pharmaceutical giant Sanofi-Aventis proposed $69 per share to the shareholders of U.S. biotech firm Genzyme, despite repeated rejections by Genzyme’s management. Concurrently, Sanofi CEO Chris Viehbacher dispatched a letter to Genzyme’s CEO asserting support from shareholders holding over 50% of Genzyme’s shares.
Shareholders had until December 2010 to entertain Sanofi’s offer. As projected by many analysts, the offer was deemed insufficient, rendering the bid unsuccessful.
Ultimately, in February 2011, Genzyme’s board concurred to a deal at $74 per share alongside contingent value rights linked to the progress of Genzyme’s experimental drug for multiple sclerosis, Lemtrada.
Related Terms: Takeover Bid, Proxy Fight, Tender Offer, Acquirer, Friendly Bid, Activist Investor, Premium, Schedule 14A.
References
- U.S. Securities and Exchange Commission. “Icahn Letter”.
- U.S. Securities and Exchange Commission. “The Notification Letter”.
- U.S. Securities and Exchange Commission. “Proxy Statement”.
- Reuters. “Sanofi Launches Hostile $18.5 Billion Bid for Genzyme”.
- The Guardian. “Sanofi-Aventis Goes Hostile in Battle for Genzyme.”
- Reuters. “Sanofi to Buy Genzyme for More Than $20 Billion”.
