Hostile takeover

Hostile takeover occurs, when one company purchase other against the wishes of the target company's management and board of directors. It is the opposite of friendly takeover.

Strategies of hostile takeover

When the purchaser is planning to carry out the hostile takeover it is highly recommended to draw the information from external sources such as:

• merchant banks (that have the required experience in these transactions),
• lawyers,
• public relations specialists,
• stockbrokers.

There are two main strategies for carrying out the hostile takeover:

• When the company is publicly-traded then the purchaser may buy-out the assets by using the stock-exchange. However, according to the law when a certain threshold of owning the company assets is exceeded then acquiring company needs to announce it, which often make it impossible to buy-out more of the stocks.
• The second strategy lies in sending the offer directly to shareholders of target company. Such tender offer (or takeover bid) defines the terms of takeover. This method is used when there is no possibility to reach an agreement with the management of purchased company.

Hostile takeover threats

Threats of a hostile takeover include the following:

• Loss of control: The target company's management and board of directors may lose control of the company to the acquiring company.
• Job Losses: Hostile takeovers can lead to job losses, as the acquiring company may look to cut costs by consolidating operations or downsizing.
• Decrease in Employee Morale: Employees may become disengaged or demotivated due to the uncertainty and potential changes brought on by a hostile takeover.
• Damage to company's reputation: Hostile takeovers can damage the company's reputation and relationships with customers, suppliers and other stakeholders.
• Financial Loss: Shareholders of the target company may see a decline in the value of their investment, and the company may take on significant debt to fend off the hostile takeover attempt.
• Legal Challenges: Hostile takeovers can be complex and time-consuming, and may face legal challenges from the target company, shareholders, or regulatory bodies.

See also:

• Friendly takeover

Hostile takeover — recommended articles

Uninsurable risk — Friendly takeover — Operational impact — Emergence plan — Poison pill — Noncovered security — Selling Group — Risk — Credit management

References

• Caves, R. E. (1989). Mergers, takeovers, and economic efficiency: foresight vs. hindsight. International Journal of Industrial Organization, 7(1), 151-174.
• Morck, R., Shleifer, A., & Vishny, R. W. (1987). Characteristics of hostile and friendly takeover targets.
• Shankar G., Trends, Merger & Acquisition, approved by AICTE, New Delhi 2007-2008, p. 8

Author: Piotr Lusiński