Hostile takeover: Overview, definition and example
What is a hostile takeover?
A hostile takeover is a type of acquisition where a company (the acquirer) seeks to take control of another company (the target) against the wishes of the target’s management. Unlike a friendly takeover, where both companies agree on the terms of the deal, a hostile takeover occurs when the acquirer bypasses the target’s board and makes a direct offer to its shareholders to buy the company’s stock.
Why is a hostile takeover important?
Hostile takeovers are important because they represent a more aggressive way of acquiring control over a company. For the acquirer, it’s a way to gain control of a company without the approval of its management, often by taking advantage of undervalued stock or poor performance. For the target company, it can result in significant disruption, changes in leadership, and potential loss of independence. The process often leads to a significant amount of negotiation, legal challenges, and sometimes, defensive strategies by the target company.
Understanding hostile takeover through an example
Imagine a large company, Alpha Inc., sees an opportunity to acquire Beta Corp., a competitor, but Beta’s management is opposed to the deal. Instead of negotiating with Beta’s leadership, Alpha goes directly to Beta’s shareholders and offers to buy their shares at a premium price, which would allow Alpha to gain control of Beta.
In this case, Alpha is using a hostile takeover strategy to bypass Beta’s management and acquire the company. Beta’s board may respond by implementing defense strategies, such as a poison pill, to make the takeover more difficult or expensive for Alpha.
Example of a hostile takeover clause
Here’s how a clause related to a hostile takeover might look in an agreement or corporate charter:
“In the event of an unsolicited offer for the acquisition of the Company’s shares, the Board shall have the right to adopt defensive measures, including the issuance of additional shares, to prevent a hostile takeover.”
Conclusion
A hostile takeover is an aggressive approach to acquiring control over a company, bypassing its management and going directly to its shareholders. While it can be a strategic move for the acquirer, it often leads to intense legal and financial negotiations and may trigger defensive tactics by the target company. Understanding the mechanics of hostile takeovers is important for both businesses looking to protect themselves and those considering such strategies for acquisition.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.