Hostile Takeover
Definition
A hostile takeover is an acquisition of a company against the wishes of its current management and board of directors. This type of takeover is often executed by another company or a well-financed raider. Shareholders may accept the offer if the price is sufficiently high, even if management resists and asserts that the company’s value is higher than the offered price.
Examples
- Kraft Foods and Cadbury: In 2009, Kraft Foods launched a hostile takeover of Cadbury, which was resisted by Cadbury’s management. Despite the resistance, Kraft Foods eventually succeeded.
- Sanofi-Aventis and Genzyme: In 2010, Sanofi-Aventis made an unsolicited bid for Genzyme, which was initially rejected by Genzyme’s management. After prolonged negotiations and increased offer prices, the acquisition was completed.
Frequently Asked Questions
What are common strategies used by target companies to resist a hostile takeover?
Target companies may employ various strategies to resist hostile takeovers, including:
- Poison Pill: Issuing new shares to dilute the potential acquirer’s stake.
- Greenmail: Buying back shares from the potential acquirer at a premium.
- Scorched-Earth Defense: Taking drastic steps to make the company less attractive to the acquirer.
What motivates a company or raider to pursue a hostile takeover?
A company or raider might pursue a hostile takeover for several reasons:
- Belief that the target company is undervalued.
- Desire for strategic assets or market share.
- Opportunities for synergies and cost savings.
What can shareholders consider during a hostile takeover bid?
Shareholders typically consider:
- The offered takeover price versus the current market value.
- The long-term potential and future strategy of the target company.
- Recommendations and assessments from valuation analysts and financial advisors.
Related Terms
- Friendly Takeover: An acquisition that is agreed upon by the management and board of directors of both companies.
- Greenmail: The practice of purchasing enough shares in a target company to threaten a takeover, forcing the target company to buy back shares at a premium.
- Poison Pill: A strategy used by companies to prevent or discourage hostile takeover attempts by making shares less attractive.
- Scorched-Earth Defense: Measures taken by a target company to make it less attractive to the acquiring party, often through asset sales or incurring significant liabilities.
Online References
Suggested Books for Further Studies
- “Mergers, Acquisitions, and Other Restructuring Activities” by Donald DePamphilis
- “The Art of M&A, Fifth Edition: A Merger Acquisition Buyout Guide” by Stanley Foster Reed, Alexandra Lajoux, H. Peter Nesvold
- “Takeovers: A Strategic Guide to Mergers and Acquisitions” by Thomas J. Dougherty
Fundamentals of Hostile Takeover: Corporate Finance Basics Quiz
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