Hostile takeovers occur when one company (the “acquirer”) seeks to purchase another company (the “target”) despite opposition to the move from the target’s management. Hostile takeovers differ from friendly takeovers, where both companies work to achieve a mutually beneficial outcome. A hostile takeover, therefore, occurs when one company attempts to seize control of another company despite objections from that company’s management.
| Aspect | Explanation |
|---|---|
| Definition | A Hostile Takeover is a corporate acquisition strategy in which an acquiring company, also known as the “acquirer” or “raider,” attempts to purchase a target company’s shares and gain control without the approval or cooperation of the target company’s management and board of directors. Hostile takeovers often involve direct offers to the target company’s shareholders at a premium over the current stock price, aiming to persuade shareholders to sell their shares to the acquirer. These takeovers can be contentious, involving aggressive tactics, proxy battles, and legal maneuvers. The objective is to gain control of the target company’s assets, operations, and decision-making powers. Hostile takeovers can significantly impact the target company’s management, employees, and shareholders. |
| Key Concepts | – Acquirer: The company seeking to acquire the target through a hostile takeover. – Target Company: The company that is the subject of the hostile takeover attempt. – Shareholder Approval: In a hostile takeover, the acquirer does not have the approval of the target company’s management and board of directors. – Premium: The acquirer typically offers a premium over the current stock price to entice shareholders to sell. – Proxy Battles: Proxy contests may occur as both sides seek shareholder votes to support their positions. |
| Characteristics | – Resistance: Hostile takeovers involve resistance from the target company’s management and board. – Public Negotiations: The takeover attempt often becomes a public and media-discussed event. – Shareholder Decision: Ultimately, the target company’s shareholders decide whether to accept the acquirer’s offer. – Legal Complexity: Hostile takeovers can lead to legal battles and regulatory scrutiny. – Change in Control: If successful, a hostile takeover results in a change of control of the target company. |
| Implications | – Change in Leadership: Hostile takeovers can result in a change in the target company’s management and board of directors. – Shareholder Outcomes: Shareholders may benefit from a premium on their shares if they accept the acquirer’s offer. – Impact on Employees: Employees of the target company may face uncertainty, job cuts, or changes in corporate culture. – Legal and Regulatory Scrutiny: Hostile takeovers can face legal challenges and regulatory reviews. – Market Perception: The success or failure of a hostile takeover can impact investor and market perceptions of both companies. |
| Advantages | – Access to Assets: The acquirer gains access to the target company’s assets, operations, and potential synergies. – Market Expansion: It can lead to market expansion and increased market share. – Shareholder Gains: Shareholders of the target company may receive a premium on their shares. – Value Creation: The acquirer may believe that the combination of the two companies will create value. – Competitive Advantage: A successful hostile takeover can provide the acquirer with a competitive advantage. |
| Drawbacks | – Hostility and Conflict: Hostile takeovers often involve contentious and adversarial tactics. – Legal Costs: Legal battles and regulatory approvals can be expensive. – Employee Impact: Employees may face job uncertainty and changes in working conditions. – Integration Challenges: Merging two companies can be complex and may not always deliver the expected benefits. – Market Reputation: Hostile takeovers can negatively impact the reputation of both the acquirer and target. |
| Applications | – Corporate Strategy: Companies may employ hostile takeovers as a strategic growth or consolidation strategy. – Market Expansion: Entering new markets or industries through acquisition. – Competitive Advantage: Gaining a competitive edge through the acquisition of a rival. – Value Creation: Combining resources and capabilities to create shareholder value. – Financial Gain: Acquirers may believe that a target company’s assets are undervalued. |
| Use Cases | – Kraft’s Bid for Cadbury: In 2010, Kraft Foods pursued a hostile takeover of British confectionery company Cadbury. Kraft’s bid was initially rejected by Cadbury’s board, but it ultimately succeeded after raising its offer. – Pfizer’s Attempt to Acquire AstraZeneca: In 2014, pharmaceutical giant Pfizer made a hostile bid to acquire AstraZeneca, a UK-based drug manufacturer. The bid faced significant political and regulatory scrutiny and was ultimately abandoned. – Hostile Takeover of Airgas: In 2010, Air Products and Chemicals made a hostile bid to acquire Airgas, a supplier of industrial gases. The takeover attempt involved legal battles and proxy contests and was ultimately successful. – Oracle’s Acquisition of PeopleSoft: In 2003, Oracle pursued a hostile takeover of PeopleSoft, a competitor in the enterprise software industry. The takeover attempt resulted in a protracted legal battle and significant media attention. – Hostile Takeover of Yahoo by Microsoft: In 2008, Microsoft made a hostile bid to acquire Yahoo, an internet company. Yahoo’s board rejected the offer, leading to discussions on the future of the company. |
Understanding hostile takeover
To take control of the target, the acquirer interacts with the target’s shareholders and offers to purchase their shares at a premium.
When the acquirer has purchased enough shares to receive a controlling interest, the hostile takeover is successful.
Hostile takeovers became popular in the United States during the 1980s, with 62 worth more than $50 million occurring between 1984 and 1986 alone.
Such was their prevalence that they influenced perceptions of American corporate culture.
The two types of a hostile takeover
There are two main strategies to help the acquirer complete a hostile takeover:
Tender offer
As mentioned in the previous section, an acquiring company might offer to purchase stock in the target company from shareholders at a premium to the market value.
The intention here is to obtain a controlling interest in the target by holding at least 50% or more of the voting stock.
Proxy fight
The second option to acquire the target company is by proxy vote. In this case, the acquiring company convinces shareholders in the target company to vote their management out.
With directors opposing the move ousted, the acquiring company can establish a team that approves the takeover.
Why do hostile takeovers occur?
Many hostile takeovers occur because previous friendly takeover attempts have failed for whatever reason.
In any case, most hostile takeovers occur because the acquirer wants to:
- Increase revenue.
- Remove a competitor from the industry.
- Gain access to copyrighted, patented, or other proprietary technology.
- Gain access to desirable employee skills or specializations.
- Control access to resources, raw materials, or specific supply chain relationships.
For shareholders in the target company, many hostile takeovers are simply driven by the lure of capital gains.
Hostile takeover examples
Examples of hostile takeovers include:
InBev and Anheuser Busch
International beverage company InBev attempted to acquire American beer company Anheuser Busch by ousting its board of directors.
When the attempt failed, InBev offered shareholders a premium price on their shares to secure the deal.
Kraft Foods and Cadbury
In 2009, Kraft made an unsuccessful $16.3 billion bid for English chocolatier Cadbury.
The bid was increased to around $19 billion the following year, which Cadbury was forced to accept after resisting the deal for months.
Shareholders in the company received a 5% premium on their holdings.
Sanofi-Aventis and Genzyme Corporation
French pharmaceutical giant Sanofi-Aventis decided to acquire American biotech company Genzyme in 2010.
The former made several friendly takeover attempts which were ultimately turned down, so the Sanofi-Aventis CEO began communicating with shareholders directly to gather support for the acquisition.
Nine months later, the deal was done.
The Luxury Wars
As explained in the Prada business model analysis back in the late 1990s, the luxury industry consolidated in a set of wars to create the next multi-brand group.
It all started with the attempt to take over Gucci, by Prada’s CEO Patrizio Bertelli, which had acquired a good chunk of Gucci, apparently as an attempt to seal a strategic partnership with the company.
In previous years, Gucci had gone through a set of internal battles to control the company.
First, the litigious Gucci family had gone through many legal battles for the takeover of the company.
Eventually, this led to the ousting of most of the company and the successful attempt of Maurizio Gucci (the son of Rodolfo, which was one of the second generations of the Gucci family).
Indeed, for some context, Gucci was founded in the 1920s by Guccio Gucci, which successfully transformed the company into one of the more renowned Italian fashion boutiques.
Yet, Guccio’s sons, Aldo, Rodolfo, and Vasco, primarily transformed the business.
Aldo led the international expansion of Gucci, which transformed it into one of the most renowned fashion houses of the 1970s.
In contrast, Rodolfo and Vasco led the creative and industrial side back in Italy.
The second generation of Gucci was highly successful in building Gucci into one of the most successful fashion brands in the world.
Gucci was the first Italian company to successfully expand in the US, to become a brand comparable to other French fashion brands, and it managed to IPO back in 1995.
Yet, Gucci also set the stage for a family feud, made of legal battles, that would make it into the most talked about until the 1990s.
Finally, after internal wars that lasted for years, Maurizio Gucci, son of Rodolfo, managed to take over control of the company, thanks to the partnership with Investcorp, an investment fund that had put its eyes on Gucci.
As Maurizio Gucci took control of Gucci, he tried to rebuild the brand, by re-organising it around the core product lines.
Yet, after 2-3 years of unsuccessful attempts, Investcorp played its cards and ousted Maurizio Gucci.
As the last Gucci was ousted from the company’s management and ownership, the company was led by Domenico De Sole, an Italian-born, US-adopted lawyer, who had grown into Gucci, from Maurizio Gucci’s father’s loyal lawyer to the company’s CEO.
At the same time, as Gucci reorganized its management, Tom Ford, a young designer, finally became the head of the company’s creative side (Tom Ford would sell his own brand to Estée Lauder, in 2022, for $2.8 billion!).
The duo De Sole-Ford (they are still partners today, and De Sole also helped sell Ford’s company to Estée Lauder in 2022) would go on to create one of the most successful business turnarounds of the last decades.
Gucci went from a company losing a ton of money in the mid-90s to an extremely profitable company at the turn of the century.
By the late 1990s, thus, Gucci had become an interesting target for other brands, primarily Prada, who started the bidding wars.
Indeed, as Bertelli, Prada’s CEO, had bought a substantial chunk of shares from Gucci, he tried to build a strategic partnership with the company.
Yet, Gucci now run by Domenico De Sole and Tom Ford, didn’t want to deal with Bertelli or lead a merger between the two companies.
This opened up the way for another company that would try all it could to conquer Gucci, which was LVMH.
At the time, LVHM had already become a luxury empire thanks to the incredible business acumen of Bernard Arnault, which started his career by channeling the resources from the family real estate business toward iconic brands.
By the late 1990s, LVMH had grown into the first multi-brand fashion house.
In 1998-9, the luxury industry lived a strange moment. As we saw back then, Patrizio Bertelli (Prada’s CEO) seemed to have foreseen the future.
After he had acquired a good chunk of Gucci shares, which resembled an unusual move, he tried a take over, which would be almost impossible for the time.
Indeed, while Gucci was a rival of Prada, Prada was smaller than Gucci. While Bertelli’s reasoning might have been driven also by the fear of Gucci entering into agreements with some of Prada’s artisans in the Scandicci region in Italy, Bertelli backed down when Bernard Arnault came in.
As we saw, the paradox is that at the time, Prada was smaller than Gucci and didn’t have the financial resources to take over the company.
So eventually, Prada sold its stake to LVMH for an incredible financial gain.
While Arnauld initially claimed his takeover of Google was a friendly one, in reality, it came out almost immediately that he was only trying to get more and more control of the company to finally make Gucci one of the brands under the control of LVMH.
Indeed, Arnauld’s tactics were well-known at that point.
He managed to gain control of many valuable fashion brands and reunite the brand’s LV and MH under the same umbrella by playing the owners of those two brands against each other while he took control of their group!
Yet, Gucci, under Domenico De Sole and Tom Ford, didn’t like the idea of being taken over by LVMH to become one of the brands under Arnauld’s control!
Thus, the war ensued.
In an incredible deal of the last moment, Gucci found a white knight, into another French billionaire, François-Henri Pinault.
Pinault understood the time window to consolidate in the fashion industry was right, and he convinced De Sole and Tom Ford to close a deal with him by making Gucci the central business unit in charge of developing a multi-brand strategy for PPR (which would eventually become Kering)!
LVMH, which had amassed a substantial stake in Gucci, was diluted as Gucci issued stocks in favor of Pinault, thus making Arnauld slowly back up from the deal.
That was the beginning of the fight between two groups that would eventually dominate the whole luxury fashion industry: LVMH (controlling brands like Christian Dior, Fendi, Givenchy, Marc Jacobs, Stella McCartney, Loewe, Loro Piana, Bulgari, and Tiffany & Co) and Kering (controlling brands like Gucci, Saint Laurent, Bottega Veneta, Balenciaga, Alexander McQueen)!
Key takeaways
- A hostile takeover occurs when one company attempts to seize control of another company despite objections from that company’s management.
- A hostile takeover usually occurs because most companies are focused on growth. Acquiring another company can increase revenue, reduce competition, and grant access to proprietary technology, skilled employees, and important supply chain relationships.
- Instances, where a hostile takeover was facilitated by shareholders, include the acquisition of Anheuser Busch by InBev and the acquisition of Cadbury by Kraft Foods. Another example is the takeover of Genzyme by Sanofi-Aventis, where shareholders were approached directly after friendly takeover attempts failed.
Key Highlights
- Definition and Contrast with Friendly Takeovers: A hostile takeover occurs when one company (the “acquirer”) seeks to purchase another company (the “target”) despite opposition from the target’s management. Unlike friendly takeovers where both parties cooperate for a mutually beneficial outcome, hostile takeovers involve resistance from the target’s management.
- Process of Hostile Takeover: The acquirer interacts with the target’s shareholders and offers to purchase their shares at a premium. When the acquirer accumulates enough shares to gain a controlling interest, the hostile takeover succeeds.
- Popularity and Influence: Hostile takeovers gained prominence in the US during the 1980s, influencing perceptions of American corporate culture. During this period, numerous high-value hostile takeovers occurred, reflecting the aggressive nature of these actions.
- Strategies for Hostile Takeovers:
- Tender Offer: The acquirer offers to purchase stock from the target’s shareholders at a premium, aiming to control at least 50% of the voting stock.
- Proxy Fight: The acquirer seeks to convince target company shareholders to vote out the existing management. Once the management is replaced, the acquirer’s team takes control.
- Motivations for Hostile Takeovers: Companies often resort to hostile takeovers when previous friendly takeover attempts fail. Common motivations include:
- Increasing revenue.
- Eliminating competition in the industry.
- Gaining access to proprietary technology.
- Acquiring skilled employees or specialized expertise.
- Controlling essential resources or supply chain relationships.
- Examples of Hostile Takeovers:
- InBev and Anheuser Busch: InBev attempted a hostile takeover of Anheuser Busch by purchasing shares and offering a premium price to shareholders. The attempt initially failed, but InBev eventually secured the deal.
- Kraft Foods and Cadbury: Kraft’s hostile takeover bid for Cadbury faced resistance initially. However, after increasing the offer, Kraft managed to acquire Cadbury.
- Sanofi-Aventis and Genzyme Corporation: Sanofi-Aventis pursued a hostile takeover of Genzyme after friendly attempts were rejected. The acquirer directly communicated with shareholders to gain support, leading to a successful acquisition.
- Luxury Wars and Industry Consolidation: The luxury industry saw fierce battles for control, with companies like Prada, LVMH, and Kering competing for brands like Gucci and others. These battles influenced the consolidation of the luxury fashion landscape and led to the dominance of key multi-brand groups.
Connected Economic Concepts
Positive and Normative Economics
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