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.
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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.
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.
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