What Is a Hostile Takeover Bid?
A hostile takeover offer involves acquiring a controlling stake in a public business without the knowledge or agreement of its board of directors. If the board rejects a bidder’s offer, the buyer might tender, start a proxy war, or buy company stock.
Understanding the Hostile Takeover Bid
A firm usually launches a takeover offer to expand, eliminate a competitor, or both. The corporation may aim to increase its client base, distribution networks, market share, or technical edge.
An activist shareholder may bid to enhance the target company’s performance and profit from its stock price increase.
Making an offer to the company’s board of directors to buy a controlling interest is typical. The board of directors may reject an offer if it does not benefit the company’s shareholders.
At such a point, a hostile takeover may occur.
Combative Takeover Bids
The acquirer can buy enough business stock on the open market to gain control. Acquiring a large company share leads to a more fantastic price, making it difficult to achieve. The aggressor will undoubtedly overpay because the price increase has little to do with the company’s success.
Two main methods remain:
Tender Offer
The potential purchaser may propose a tender to the company’s shareholders—a tender offer to acquire a controlling stake in the target’s shares at a set price. The price is frequently higher than the market price to encourage share sales. This official offer may have an expiration date. After filing paperwork with the Securities and Exchange Commission (SEC), the acquirer must submit a statement of their plans for the target firm. Companies can defend against tender proposals via takeover defense techniques. Such instances may include proxy fights.
Proxy Fight
A proxy struggle aims to replace board members who oppose the takeover with those who support it. This entails convincing shareholders to alter management. If shareholders want a management change, they allow the potential acquirer to vote their shares by proxy for a new board member or member. If the proxy war succeeds, the new board members will vote for the target’s purchase.
A Hostile Takeover Comeback?
The 1980s saw a wave of well-publicized aggressive takeovers by “corporate raiders.” Since then, they have mostly happened following market downturns, making companies appealing targets.
After the 2020 COVID-19 pandemic, the Harvard Law School Forum on Corporate Governance projected more aggressive takeovers in late 2020. The year 2021 saw record mergers and acquisitions. In 2021, PwC reported 62,000 global agreements worth $5.1 trillion, including 130 “megadeals” worth over $5 billion.
Conclusion
- A tender offer directly solicits shareholders to sell their shares at a premium to the acquirer.
- A proxy war seeks shareholder support for board member replacements with takeover supporters.
- Purchasers can also buy shares on the open market.
