What is Hostile Takeover?
A hostile takeover is a systematic process of taking over another company despite its management not willing to sell. Instead, the acquiring company goes directly to the shareholders of the target company and completes the takeover. A hostile takeover is different from a friendly takeover wherein the management of the target company willingly sells it.
How Hostile Takeover Works
When a company's management resists an acquisition bid, the acquiring company may turn to hostile takeover tactics. These maneuvers involve going directly over the heads of executives and appealing to the company's shareholders. Two main strategies are employed in a hostile takeover: tender offers and proxy fights.
Tender Offer: Making Shareholders an Offer They Can't Refuse
In a tender offer, the acquiring company bypasses the target company's board and directly approaches its shareholders. They typically offer to purchase shares at a premium above the current market price, enticing shareholders to sell their holdings. By acquiring enough shares, the acquiring company can achieve a controlling stake in the target company, even if the board disagrees. The tender offer strategy is subject to regulations set by the Securities and Exchange Board of India (SEBI).
Proxy Fight: Reshaping the Board from Within
A proxy fight is a more indirect approach. Here, the acquiring company nominates its own candidates for the target company's board of directors. Shareholders then vote on who will represent them on the board. If the acquiring company can win enough seats, it can gain control over the board's decisions and potentially push through the acquisition, even against the wishes of the current management. Unlike tender offers, proxy fights are not subject to SEC regulations.