A Hostile Takeover Example to Learn From
In 2000 when AOL agreed to purchase Time Warner for $165 billion, the biggest merger in history yet, the skies looked bright.
But no one can predict the future.
As many investors know, the dot-com bubble, also known as the internet bubble, burst in 2001 and throughout 2002. By the end of 2001, most dotcom stocks had lost their value, and seventeen years later, AOL Time Warner no longer exists.
We can learn much from a good and bad hostile takeover example. Read on to learn about what works and what doesn’t work in the world of rough seas of hostile takeovers.
The Unsuccessful Hostile Takeover Example
Hostile takeovers begin when an interested and wealthy party sees a dying business in need of revival.
Step 1: Own a Chunk of the Company
That investor must have some skin in the game.
Carl Icahn represented such an interested party in his quest for Clorox in 2011.
In the early twenty-first century, billionaire Carl Icahn, known as a corporate raider, made his play for Clorox, a company that sells cleaning products.
Icahn’s company, Icahn Enterprises, held a 9.4 percent stake in Clorox by 2011.
This is your first step in a hostile take over: have a vested interest.
With 9.4 percent of the shares at his disposal, Icahn Enterprises was the largest shareholder of this struggling company.
Step 2: Make Your Bid
In July, Icahn started a bidding war where he appeared to be the only party bidding. He made three different offers to Clorox, topping out at $11.7 billion.
The board rejected each of the three offers systematically.
Step 3: Be the Boss Before You’re the Boss
Icahn was known for his desire to purchase companies to change up their structures and methods. His bullying reputations did not go well with the board at Clorox.
Icahn flexed his muscles in particular when he sent one of his bids in the form of a letter in all caps, much like shouting to the parties from whom he was attempting to purchase this company.
The Positive Hostile Takeover Example
Here’s a hostile takeover example that left a CEO with a fat bank account.
After the 1987 stock market crash, RJR Nabisco fell on hard times, much like a handful of businesses at that time.
At that time, RJR Nabisco sold both tobacco and food products.
The CEO, F. Ross Johnson had been paying attention to the cigarette industry and predicted the upcoming hits it would take with the newest health concerns regarding cigarette usage.
As a result, Johnson began to pursue options for splitting the company, taking Nabisco private but leaving the tobacco portion of the company public.
Johnson found himself in the middle of a bidding war with KKR, an investment bank. KKR eventually won the company. They wanted an LBO structure, and as a result, KKR ended up weighing Nabisco down with a huge amount of debt.
Johnson walked away with approximately $23 million after taxes.
What Can You Learn
Every hostile takeover example tells a different story and leaves lessons to be learned. Garner what you can from them. Consider your legal choices when you’re in the middle of a business acquisition.
If you’re the victim of a hostile takeover or would like to engage in a hostile takeover, contact us today. We can help you navigate the rough waters ahead.