Your Guide to a Winning Strategy for Hostile Takeovers
In the business world, acquiring another business isn’t easy. Sometimes hostile takeovers are the only way for a business to successfully pull of an acquisition. And while this technique is effective, it’s hard to execute without an expert strategy.
This article will delve into the ins-and-outs of hostile takeovers, as well as successful strategies for executing one.
What is a Hostile Takeover?
A hostile takeover is when a company obtains another company by making a direct offer to the target company’s shareholders. This is done most of then through a proxy offer or tender offer. In a hostile takeover, the board of directors of the targeted company does not approve of the situation.
There are many factors that play into a hostile takeover. Often times, the company looking to take over does it because they believe the target company is significantly undervalued.
In other scenarios, they want access to the company’s brand, technology, or the
Winning Strategies for Successful Hostile Takeovers
In general, there are two popular strategies used to execute takeover strategies: tender offer and proxy offer. Both can be effective, but the use of one over another is a decision a legal counsel generally makes.
A tender offer is an offer to buy stakeholder shares in the target company at a premium to the standard market price. For example, the bigger company offers to buy $10 stocks at $15. This quickly allows them to amass the shares needed to attain a majority stake in the company.
With a proxy offer, the bigger company convinces stakeholders to push out existing management. The company shareholders then use their proxy vote to oust people from the board of directors. They then replace those people with board members who support the takeover.
Hire an Expert Lawyer
It’s hard to pull off a takeover without help from an expert legal team. A lawyer can provide guidance to the bigger company and make strategic decisions on their behalf. They can also handle negotiations and legal paperwork.
Defense Strategies to Keep an Eye Out For
Planning a hostile takeover requires an understanding of defense strategies the target company may implement. The two defenses below are the most frequently used defense strategies:
Poison Pill Defense
With the poison pill defense, the target company sells their shares at a discounted rate. This tanks the equity interest of each share and makes it harder for the bigger company to get a majority stake. If the company moves quickly and effectively acquire those discounted shares, however, they can bypass this defense.
Crown Jewels Defense
This defense strategy is generally used by more desperate companies. With this defense, the target company actually sells the most valuable parts of their company. As a result, they become less desirable for takeover.
This defense isn’t in the best interest of the target company as it tanks their business. If they’re trying to implement this defense, the acquiring company should reach out proactively and try to pitch them on the takeover. If they can frame it as a friendly takeover, the target company may be less likely to sell off the most valuable parts of their business.
Final Thoughts on Hostile Takeovers
Pulling off hostile takeovers isn’t easy, but it’s possible if its approached in the right way. Hiring an expert lawyer and strategizing a proper plan of attack can help a business quickly and effectively acquire their target company and scale their business.
Acquiring another business isn’t easy. Those in need of expert legal assistance should get in touch with us at Manfred Law.