Takeover Defense: What is a Hostile Takeover and How to Prep for It
The experts say that 50% of all businesses fail within the first five years.
Many of them fall victim to hostile takeovers. “What is a hostile takeover?” you may ask. It is one of the deadliest attacks a business can face as a hostile bidder seeks to infiltrate an organization.
Even though it may seem that there is no way out when a hostile takeover is threatened, this is not necessarily so. You can take defensive action to protect your business.
Here are some answers as to exactly how a hostile take over is carried out and the best methods to prepare your company for it.
What is a Hostile Takeover?
A hostile takeover involves a hostile bidder who seeks to acquire a company by approaching its shareholders to buy out their shares.
The hostile bidder may also try to vote out and replace a company’s current Board of Directors in order to make it easier to acquire the company. There are three major ways you can protect your company and these will be discussed below.
The Poison Pill Defense
The poison pill defense is a bit like punching yourself in the stomach. It’s going to hurt. However, it can work to preserve your company.
This method involves diluting your company’s shares among current shareholders by offering them more shares at a discounted price. This will make it hard for a hostile bidder to get hold of any of the shares in your company, effectively preventing the takeover.
Stagger Your Board of Governors
Another line of defense that you can use when a hostile takeover is imminent is to segregate your Board of Directors. You can do this by placing them in different groups.
You can then only allow one set of them to be up for re-election at any meeting. When you stagger the board this way it makes it difficult for the entire board to be voted out all at once. In fact, voting out the whole board can become so time-consuming it frustrates the hostile takeover process.
Find a Knight in Shining Armor
Have you ever watched a movie or read a book, where a damsel in distress is rescued by a knight in shining armor? Well believe it or not your company can stave off a hostile takeover by taking a page from these dashing tales.
To make what is called the White Knight Defense work you will need to find a friendlier company who can come in and buy out all controlling shares in the company before the hostile bidder has a chance to do so.
The best case scenario is that the White knight agrees to restructure the company after the acquisition in a way that will support the vision of the current Board of Directors. You may also ask the White knight to keep the current staff to prevent breakage of any employment agreements.
Now that you know the answer to the question, “What is a hostile takeover?” You undoubtedly realize that the best way to prepare for it is to create a good defense.
If you utilize the tips given above you should be able to stave off a takeover. However, if you need help you should hire the services of a lawyer.
Your lawyer will be able to guide you as to legalities of what you are doing and make the whole process of preparation against a takeover a whole lot easier.
If you would like legal advice for your business please do not hesitate to contact us.