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),
- public relations specialists,
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.
- 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