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Denis Waitley

Investment Dictionary


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Hostile Takeover

 

A hostile takeover is an acquisition of a target company when its management doesn’t want the company to be overtaken by another corporation. The target of a hostile takeover may be only listed company which has large free float. Most large corporations are traded in stock exchanges and sometimes the biggest shareholder has less than 20% (the number is just an example) of votes in the company, that means other votes belongs to smaller shareholders and management of the company is freely elected and do not belong to one strategic shareholder. Such companies may become targets of a hostile takeover. 

 

Usually friendly takeovers are much more common in M&A reality, but hostile takeovers attracts more attention because of the intrigue which is created by confronting barricades. Almost every hostile takeover is a little drama (big for someone, because probably management of target company is going to lose their jobs) and creative decisions or large money are used to get the wanted results for both sides. Hostile takeover requires high-end financial knowledge or investment gurus, and such takeover sometimes lasts for very long period until is completed or failed. 

 

The main goal of an acquirer is to buy as many shares (voting rights) that could take control over target’s management. The target’s of the hostile takeover management tries to do everything to stop this process and sometimes it costs a lot of shareholders money. Many strategies are used to avoid hostile takeover, the most popular are poison pill, white knight, and greenmail.

 

 






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