Hostile Takeover

A hostile takeover takes place when the company is taken over without the choice of management especially the directors. It is either done with the purchase of shares or with the help of a demand to request the change in the management.

When the target company is not willing to sacrifice the company, hostile take over takes place. The acquired company uses many techniques to stop the acquisition and these takeovers are not friendly. It is that type of sale of a company in which the acquirer gets all the rights in the targeted company including the rights over patents, copyrights, assets etc. The acquired company then works either independently under the new company’s orders or it completely taken off the scene.

There are ways to make hostile takeovers possible. One common way is to tender a price to the target company above the market price so that the target company can give it a thought. The second method includes going to the shareholders and attaining simple majority so that the old management can be replaced easily. In both the methods the management does not like it but it is still carried out. There is another method known as the tender creeping offer in which the acquirer buy enough shares from the market so that a change can be made in the targeted company.

Despite the fact that hostile takeover is not friendly at all some economist believe that it takes place due to the reason that institutional shareholders does not vote against the incumbent management and this gives a chance to the inefficient directors to stay in their places which proves bad for the company. The directors often work against the acquisition process by giving a chance to the shareholders to increase the price and earn some profit on it. They also use the technique of increasing the capital of the company by issuing more shares in the market. Keeping in mind all these reasons still the targeted company gets taken over by the acquirer using ways that are although legal but against the wishes of management.