What is a Hostile Takeover Bid?
As a board member or other high-level exec, you understand that not all is fair in business. But do you know just how far some are willing to go to assemble a takeover?
While most hostile takeovers are unsuccessful, there are plenty of attempts each year. This strategy involves going against the wishes of board members from a company.
You need to be prepared in the event your company is sought after by a hostile bidder. If you’ve ever wondered “What is a hostile takeover?”, keep on reading.
What Is a Hostile Takeover?
It’s very difficult to procure the controlling interest in a public corporation. In a hostile takeover, a bidder makes an offer to board members from a publicly-traded company.
Although these members decline the offer, the bidder continues to pursue the acquisition.
There are three tactics a bidder can use to gain leverage over the controlling stock. These include tender offers, proxy fights, and purchasing the necessary stock.
When a bidder makes a tender offer, they’re looking to purchase a controlling share of stock. However, the buyer will often set the offer above market price to incentivize the seller.
In order for a bidder to make a tender offer, they must follow SEC regulations. This includes providing a detailed plan of what the buyer intends to do with the company.
Many corporations employ a takeover defense strategy to protect against tender offers. For that reason, bidders will initiate a proxy fight in order to convince shareholders to change management.
Essentially, the goal is to replace reluctant board members with those who approve of the acquisition. If shareholders agree to a change in management, the bidder can vote by proxy for their desired board member.
Purchasing Controlling Stock
This method is often a last-stitch effort for hostile takeover bidders. It involves a potential acquirer purchasing a controlling interest in the stock that’s available in the open market.
Why Hostile Takeover Bids Matter
A hostile takeover puts a lot of pressure on management and board members’ backs. But it’s also not always a good move for the acquiring party either.
Since board members oppose the acquisition, they limit the information that’s publicly available. This includes any unsettled debts and other serious problems, placing a bidder at high risk.
That’s why it’s preferred to engage in a friendly takeover, which is approved by all parties. This allows both sides to discuss their interests and evaluate the proposed agreement.
Let’s Wrap This Up
What is a hostile takeover for a board member or someone in upper-level management? It’s a threat to everything they’ve worked hard for.
Mergers and acquisitions are often needed for a company to move forward. But they must be handled in compliance with both state and federal law. If your company is dealing with an acquisition of any nature, you need legal counsel.
Manfred Sternberg & Associates has 25 years worth of experience handling these cases. Contact us today to learn more about how we can help you.