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Hostile bid
3 key takeaways
Copy link to section- A hostile bid occurs when an acquiring company seeks to take over a target company without the approval of the target company’s management.
- Hostile bids are typically made directly to the shareholders or through a tender offer or proxy fight.
- These bids can create significant tension and conflict, often leading to defensive measures by the target company’s management.
What is a hostile bid?
Copy link to sectionA hostile bid is an acquisition attempt by one company (the bidder) to take over another company (the target) without the consent or cooperation of the target company’s management and board of directors. Unlike friendly takeovers, where both companies negotiate and agree on the terms, a hostile bid is pursued despite opposition from the target company’s leadership.
Hostile bids are often driven by the acquiring company’s belief that the target company is undervalued or poorly managed and that acquiring it would create value for the bidder’s shareholders. The bidder may believe they can manage the target company more effectively or realize synergies that the current management cannot.
Methods of executing a hostile bid
Copy link to sectionHostile bids are typically carried out using one or both of the following methods:
Tender Offer: The bidder makes an offer directly to the shareholders of the target company to purchase their shares at a premium over the current market price. This offer is public and aims to persuade shareholders to sell their shares despite the management’s objections.
Proxy Fight: The bidder attempts to persuade the shareholders to vote out the current management and board of directors in favor of directors who are supportive of the takeover. This involves soliciting proxies to vote on the bidder’s proposed changes at the company’s annual meeting or a specially called meeting.
Defensive measures against hostile bids
Copy link to sectionTarget companies often employ various defensive measures to thwart hostile bids. These can include:
Poison Pill: This strategy involves issuing new shares to existing shareholders, diluting the bidder’s ownership stake and making the takeover more expensive and less attractive.
White Knight: The target company seeks out a more friendly company to acquire them instead of the hostile bidder. This preferred acquirer is known as a “white knight.”
Staggered Board: Implementing a staggered board of directors makes it more difficult for the bidder to gain control, as only a portion of the board is elected each year.
Golden Parachutes: Providing lucrative severance packages to top executives if they are ousted due to a takeover, making the acquisition more costly for the bidder.
Examples of hostile bids
Copy link to sectionVodafone and Mannesmann: In 1999, Vodafone launched a hostile bid for the German company Mannesmann. Despite initial resistance, Vodafone succeeded, resulting in one of the largest takeovers in history.
Sanofi-Aventis and Genzyme: In 2010, Sanofi-Aventis made a hostile bid for the biotech company Genzyme. After months of negotiation and resistance, Sanofi-Aventis eventually acquired Genzyme in a deal valued at over $20 billion.
Impact of hostile bids
Copy link to sectionHostile bids can significantly impact both the target and acquiring companies. They can lead to substantial changes in management, strategy, and company culture. For shareholders, hostile bids often result in a premium on their shares, but the long-term success of the acquisition depends on the bidder’s ability to integrate and manage the target company effectively.
While hostile bids can create value and drive industry consolidation, they also carry risks, including high costs, management distraction, and potential cultural clashes between the merging entities.
Related topics
Copy link to section- Mergers and acquisitions (M&A)
- Tender offers
- Corporate governance
- Proxy fights
Explore these related topics to gain a deeper understanding of the mechanisms and implications of hostile bids and other forms of corporate takeovers.
More definitions
Sources & references
Arti
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