What is a Hostile Takeover Bid?
A hostile takeover bid is an attempt to gain a controlling interest in a publicly traded company without the consent or cooperation of the target company’s board of directors. When the board rejects an offer from a potential buyer, the would-be acquirer has three main options: make a tender offer, initiate a proxy fight, or buy company stock in the open market.
- Tender Offer: Approach shareholders directly to sell their shares to the would-be acquirer at a premium over the current market price.
- Proxy Fight: Campaign to secure shareholder support for replacing board members with advocates of the takeover.
- Open Market Purchase: Buy shares in the open market to accumulate a controlling position.
Powering Your Expansion through Hostile Takeovers
Companies often launch takeover bids to expand their business, eliminate rivals, or both. They may see an opportunity to grow their customer base, access new distribution channels, increase their market share, or gain a technological advantage.
Apart from other companies, activist shareholders might also make bids to improve the target company’s performance and enjoy stock price appreciation.
Typically, the first step is presenting an acquisition offer to the board of directors. If the board believes the offer is not in the best interest of shareholders, they may reject it, prompting a hostile takeover bid.
Effective Hostile Takeover Tactics
Acquiring a controlling share through an open market purchase is challenging due to significant price increases resulting from large-scale acquisitions. Hence, the would-be acquirers usually resort to two major tactics:
Tender Offer
The acquirer may make a tender offer to the company’s shareholders to purchase a controlling share of the stock at a fixed price above the current market rate. This formal offer usually includes an expiration window and requires filing paperwork with the SEC. Additionally, the acquirer must outline plans for the target company, while the target may employ defense strategies against the tender offer, leading to a potential proxy fight.
Proxy Fight
In a proxy fight, the acquirer seeks to persuade shareholders to replace board members opposing the takeover with those favoring it. This involves convincing shareholders about the necessity of management change, allowing the acquirer to vote their shares by proxy. Successful proxy fights can lead to new board members who support the acquisition.
The Evolution and Resurgence of Hostile Takeovers
Hostile takeovers, particularly notorious in the 1980s with figures like corporate raiders, have since mostly emerged after market downturns. For instance, the significant market impacts of the 2020 COVID-19 crisis led to a resurgence in merging and acquisition activities, as predicted by the Harvard Law School Forum on Corporate Governance.
Indeed, mergers and acquisition activity reached unprecedented levels in 2021, with over 62,000 deals globally worth $5.1 trillion, including 130 ‘megadeals’ valued at over $5 billion.
Related Terms: mergers,, w, acquisitions,, takeover,, corpor, raiders,, curi.
References
- Investor.gov. “Tender Offers”.
- Harvard Law School Forum on Corporate Governance. “The Comeback of Hostile Takeovers”.
- PwC. “Global M&A Industry Trends: 2022 Outlook.”
