What is a hostile takeover in mergers and acquisitions?
A hostile takeover, in mergers and acquisitions (M&A), is the acquisition of a target company by another company (referred to as the acquirer) by going directly to the target company’s shareholders, either by making a tender offer or through a proxy vote.
How do target companies defend themselves against a hostile takeover?
Acquiring companies that pursue a hostile takeover will use any number of tactics to gain ownership of their target. These include making a tender offer directly to shareholders or engaging in a proxy fight to replace the target company's management. To defend itself against the acquirer, a target company can also deploy a variety of strategies.
What is a preemptive hostile takeover defense?
Preemptive Hostile Takeover Defenses. Employees may be more likely to vote with management, which is why this can be a successful defense. In a crown jewel defense, a provision of the company's bylaws requires the sale of the most valuable assets if there is a hostile takeover, thereby making it less attractive as a takeover opportunity.
What are some of the most famous hostile takeovers of all time?
One of the most prominent hostile takeovers of all time was the leveraged buyout (LBO) of RJR Nabisco by investment bank KKR (KKR) in the late 1980s. This takeover was well-documented in "Barbarians at the Gate: The Fall of RJR Nabisco.". RJR Nabisco was created by a record-setting merger between Nabisco and RJ Reynolds for $4.9 billion in 1985.
Why do hostile takeovers happen?
How Is a Hostile Takeover Done?
What Are Other Defenses to a Hostile Takeover?
What is proxy fight?
What are the two methods of achieving a hostile takeover?
What is the best way to defend against hostile takeovers?
How to protect against hostile takeovers?
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What is a hostile takeover?
A hostile takeover is when a company or activist shareholder tries to gain control of a target company by sidestepping the company's management and board of directors, and going directly to its shareholders.
What causes hostile takeovers?
Hostile takeovers may take place if a company believes a target is undervalued or when activist shareholders want changes in a company. A tender offer and a proxy fight are two methods in achieving a hostile takeover.
What is the best example of a hostile takeover?
In the largest hostile takeover in history, Vodafone acquired German firm, Mannesmann AG, for $202.8 billion in 1999. This was before Vodafone reverted to its original name, 'Vodafone Group,' in 2001, and the agreement finally came after Mannesmann's largest investor pleaded with the board to accept Vodafone's offer.
What are the two types of hostile takeovers?
A hostile takeover usually takes on one or both of two forms: (i) a tender offer; (ii) a proxy battle. In a tender offer the bidder directly approaches the target company's shareholders, usually with a public offer. The offer is to pay an above market share price to shareholders who agree to “tender” their shares.
What are the three ways of hostile takeover?
Hostile takeovers can be done in three ways: a direct tender offer to shareholders, a proxy fight, and a purchase on the open market of the majority of shares.
What is another word for hostile takeover?
What is another word for hostile takeover?takeover bidleveraged buyouttakeoverleverage
What is the biggest hostile takeover?
5 Examples of Hostile Takeovers That Actually WorkedAOL and Time Warner, $165 billion, 2000. ... RBS and ABN Amro, $98.5 billion, 2007. ... Sanofi-Aventis and Genzyme Corp, $20.1 billion, 2010. ... Oracle and PeopleSoft, $10.3 billion, 2004. ... Vodafone AirTouch and Mannesmann AG, $190 billion, 1999.More items...•
What are the types of takeover?
Depending on the type of bid, takeover offers are normally taken to the target's board of directors, and then to shareholders for approval. There are four types of takeover bids: Friendly, hostile, reverse, or backflips.
How do you deal with a hostile takeover?
A preemptive line of defense against a hostile corporate takeover would be to establish stock securities that have differential voting rights (DVRs). Stocks with this type of provision provide fewer voting rights to shareholders.
What happens to employees during a hostile takeover?
Hostile takeovers, on the other hand, often happen without notice and leave everyone, including management, in a state of shock and bewilderment. With changes in management, layoffs are a common occurrence, and layoffs often trickle down a few at a time, leaving employees fearful about who is next to go.
Are Hostile takeovers ethical or unethical?
Hostile takeovers are generally good for shareholders, yet the management of the target company often uses corporate assets in an attempt to thwart the takeover. In other words, they are breaching their fiduciary duty by using corporate assets to do things that are against the shareholders' interests.
Why are hostile takeovers bad?
Hostile Takeover These types of takeovers are usually bad news, affecting employee morale at the targeted firm, which can quickly turn to animosity against the acquiring firm.
How do you avoid a hostile takeover?
A preemptive line of defense against a hostile corporate takeover would be to establish stock securities that have differential voting rights (DVRs). Stocks with this type of provision provide fewer voting rights to shareholders.
Which of the following factors often affects hostile takeover bids?
Three key factors are most likely to influence whether a hostile off-market takeover bid will succeed: The Target Board's initial and final recommendation. Whether the Bidder increases its offer price. Whether Target's major shareholders are willing to accept the offer, regardless of recommendation.
Are Hostile takeovers ethical or unethical?
Hostile takeovers are generally good for shareholders, yet the management of the target company often uses corporate assets in an attempt to thwart the takeover. In other words, they are breaching their fiduciary duty by using corporate assets to do things that are against the shareholders' interests.
What happens to employees during a hostile takeover?
Hostile takeovers, on the other hand, often happen without notice and leave everyone, including management, in a state of shock and bewilderment. With changes in management, layoffs are a common occurrence, and layoffs often trickle down a few at a time, leaving employees fearful about who is next to go.
How Can a Company Resist a Hostile Takeover? - Investopedia
The Netflix board responded by instituting a shareholder-rights plan to make any attempted takeover excessively costly. The terms of the plan stated that if anyone bought up 10% or more of the ...
What is the difference between hostile and friendly takeover?
The difference between a hostile and a friendly takeover is that, in a hostile takeover, the target company’s board of directors. Corporate Structure Corporate structure refers to the organization of different departments or business units within a company. Depending on a company’s goals and the industry. do not approve of the transaction.
What are the two common hostile takeover strategies?
There are two commonly-used hostile takeover strategies: a tender offer or a proxy vote.
Who bought out RJR Nabisco?
Private equity firm KKR’s leveraged buyout of RJR Nabisco in the late 1980s. Read more about this transaction in the book, “ Barbarians at the Gate .”
What is a golden parachute?
Golden Parachute A golden parachute, in mergers and acquisitions (M&A), refers to a large financial compensation or substantial benefits guaranteed to company executives upon termination following a merger or takeover. Benefits include severance pay, cash bonuses, and stock options.
What happens to the share price when a hostile takeover is made?
The share price increases follow a rather convoluted path in the share repurchase process. Even if the Hostile takeovers are eventually made, these involve management to make certain offers that are friendly for the shareholders. Usually, these offers are made so that the shareholders reject the hostile takeover bid.
What is hostile takeover?
A hostile takeover is a kind of acquisition by the target company by another company referred to as an acquiring company, where even though the target company’s management is not in the favor of the acquisition but still the bidder uses other channels to acquire the company such as acquiring the company through tender offer by directly make offer to the public to buy the shares of target company at the pre-specified price which is more than the prevailing market prices.
How does hostile takeover affect the economy?
However, some analysts opine that hostile takeovers have an adverse effect on the overall economy. When one company takes over another one by force, the management may have limited or no understanding of the business model of the target company, their work culture, or technology.
Why is the expansion of macaroni when cooked an allegory?
The expansion of macaroni when cooked has been used as an allegory to depict that redemption of bonds at higher prices increases the cost of the hostile takeover. It is actually a tough nut to crack for a potential buyer when the redemption price of bond increases.
What happens when a company drops its decision for a hostile takeover?
Later on, when the acquiring company drops its decision for a hostile takeover, the target company again buys back its assets from the White Knight at a predetermined price.
What is golden parachute?
Golden Parachute Golden parachute refers to the clause in the employment contract whereby the top-level executives entitled to receive significant benefits if the company faces a merger or takeover. Such benefits comprise liberal severance pay, cash bonus, retirement packages, stock options, etc. read more.
Is hostile takeover a generalization?
However, the outcome of hostile takeovers, like every other Merger and acquisition, cannot be generalized. Hence, it is difficult to conclude whether they are successful or not. The cost-benefit analysis
What is hostile takeover?
A hostile takeover is the opposite of a friendly takeover, in which both parties to the transaction are agreeable and work cooperatively toward the result.
Why do companies take over hostile companies?
One reason for an acquiring company to target another company in a hostile takeover is to use the acquisition to obtain valuable technology or research. This strategy can help jumpstart the acquiring company's ability to enter new markets. Such was the case in 2010 when France's largest pharmaceutical company, Sanofi-Aventis ( SNY ), decided to buy American biotech company, Genzyme Corporation. 9
What is the best strategy to defend against acquirers?
Some of the more colorfully named tactics are the Pac-Man defense, the crown-jewel defense, or the golden parachute.
Who bought Anheuser-Busch?
In June 2008, Euro-Brazilian beverage company, InBev, made an unsolicited bid for iconic American beer brewer, Anheuser-Busch. InBev offered to buy Anheuser-Busch for $65 a share in a deal that valued its target at $46 billion. 5
Who bought Genzyme?
Sanofi-Aventis Chief Executive Officer, Chris Viehbacher, began courting Genzyme's major shareholders directly, meeting with them privately to gather support for the acquisition. 10. The strategy worked, and nine months after the first proposal, Sanofi-Aventis bought Genzyme in a $20.1 billion cash offer.
What is hostile takeover?
A takeover by an acquiring company of the Target company is termed as ‘Hostile Takeover’ when the offer made by the acquiring company to the Board of Directors or the management of the Target company is originally refused but the acquiring company tried another way around to acquire the company’s business.
What is the traditional way of taking over a company?
This traditional way of takeover is termed as Friendly takeovers. Whereas in the case of Hostile Takeover, the management of the target company initially rejects the offer provided by the acquirer company as they don’t want to change the ownership of the business company.
What to do after offer is refused?
After the offer got refused by the management of the target company, the acquirer company should opt for other strategies to get approval from the management of the target company for the possible merger and acquisition.
What happens after the initial offer is rejected?
After the rejection of the initial offer made by the acquirer company by the management of the target company, the acquirer company can opt one of the following two strategies for the takeover transaction:
Does the management of the target company accept the offer?
But it is not necessary that the management or board of directors of the target company should accept the offer. In case the management of the target company refuse the offer and the idea of letting their company get acquired by other company, the acquirer company may use other means to persuade the management of the target company to accept ...
Does a hostile takeover benefit the target company?
Mostly it could be said that the target company gets benefited in case of the hostile takeover as their shareholders get premium at the redemption of their shares. But it is not foreseeable that the acquirer company will always get benefited as they have to incur huge debts to pay off the shareholder of the target company and thus this may result into the downfall in the market price of the shares of the company as well as there is the possibility that the actual situation of the target company may differ from the data gathered by the acquirer company from the outsources.
Is hostile takeover good for acquirer?
The hostile takeover is not always beneficial for the acquirer company: In hostile takeover instead of getting relevant information and data from the target company (as in friendly takeover), the acquirer company has to rely on the information gathered from outsourcing, which may not be reliable as much as original source.
Why do hostile takeovers happen?
Hostile takeovers may take place if a company believes a target is undervalued or when activist shareholders want changes in a company.
How Is a Hostile Takeover Done?
A hostile takeover takes place when one entity tries to acquire a publicly-traded company without any consent or cooperation from the target's board of directors.
What Are Other Defenses to a Hostile Takeover?
Companies can use the crown-jewel defense, golden parachute, and the Pac-Man defense to defend themselves against hostile takeovers.
What is proxy fight?
In a proxy fight, opposing groups of stockholders persuade other stockholders to allow them to use their shares' proxy votes. If a company that makes a hostile takeover bid acquires enough proxies, it can use them to vote to accept the offer.
What are the two methods of achieving a hostile takeover?
A tender offer and a proxy fight are two methods in achieving a hostile takeover. Target companies can use certain defenses, such as the poison pill or a golden parachute, to ward off hostile takeovers. 1:41.
What is the best way to defend against hostile takeovers?
Sometimes a company's management will defend against unwanted hostile takeovers by using several controversial strategies, such as the people poison pill, a golden parachute, or the Pac-Man defense.
How to protect against hostile takeovers?
To protect against hostile takeovers, a company can establish stocks with differential voting rights (DVR), where a stock with less voting rights pays a higher dividend. This makes shares with a lower voting power an attractive investment while making it more difficult to generate the votes needed for a hostile takeover if management owns a large enough portion of shares with more voting power. Another defense is to establish an employee stock ownership program (ESOP), which is a tax-qualified plan in which employees own a substantial interest in the company. Employees may be more likely to vote with management, which is why this can be a successful defense. In a crown jewel defense, a provision of the company's bylaws requires the sale of the most valuable assets if there is a hostile takeover, thereby making it less attractive as a takeover opportunity.
Example of A Hostile Takeover
Defenses Against A Hostile Takeover
- There are several defenses that the management of the target company can employ to deter a hostile takeover. They include the following: 1. Poison pill:Making the stocks of the target company less attractive by allowing current shareholders of the target company to purchase new shares at a discount. This will dilute the equity interest represented by each share and, thus, incr…
Real-Life Examples of Hostile Takeovers
- There are several examples of hostile takeovers in real-life, such as the following: 1. Private equity firm KKR’s leveraged buyout of RJR Nabisco in the late 1980s. Read more about this transaction in the book, “Barbarians at the Gate.” 2. Air Products & Chemicals Inc.’s hostile takeover attempt of Airgas Inc. Airgas Inc deterred the hostile takeover through the use of a poison pill. 3. Sanofi-…
Related Readings
- CFI is a global provider of financial analyst trainingand career advancement for finance professionals. To learn more and expand your career, explore the additional relevant CFI resources below: 1. Creeping Takeover 2. Non-Controlling Interest 3. White Squire 4. Black Knight
Overview
- A hostile takeover happens when one company (called the acquiring company or "acquirer") set…
Acquiring companies that pursue a hostile takeover will use any number of tactics to gain ownership of their target. These include making a tender offer directly to shareholders or engaging in a proxy fight to replace the target company's management. To defend itself against …
Kraft Foods In and Cadbury PLC
- In September 2009, Irene Rosenfeld, CEO of Kraft Foods Inc. ( KHC ), publicly announced her inte…
Carr immediately put together a hostile takeover defense team, which labeled Kraft's offer unattractive, unwanted, and undervalued. The government even stepped into the fray. The United Kingdom's business secretary, Lord Mandelson, said the government would oppose any offer th…
InBev and Anheuser-Busch
- In June 2008, Euro-Brazilian beverage company, InBev, made an unsolicited bid for iconic Ameri…
The takeover quickly turned hostile as both sides traded lawsuits and accusations. InBev filed to have Anheuser-Busch's entire board of directors fired as part of a proxy battle to gain control of the company. The deal took on a soap opera-like quality as it pitted Busch family members agai…
Sanofi-Aventis and Genzyme Corporation
- One reason for an acquiring company to target another company in a hostile takeover is to use t…
At the time, Genzyme had developed several drugs to treat rare genetic disorders. The biotech company also had several more drugs in its research and development pipeline. Sanofi-Aventis was eager to expand its presence in what it believed was a lucrative niche and saw Genzyme as …