What is a hostile takeover?

Since Elon Musk announced his Twitter takeover bid, the term ‘hostile takeover’ has dominated several news headlines. But what exactly do we mean by ‘hostile takeover’? 

In the most basic of terms, a hostile takeover occurs when a person or company attempts to purchase or merge with another company against the wishes of that company’s management. 

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Usually, the interested person or company will make an offer to purchase or merge with the target company. This offer is then refused by the company’s board of directors. The interested company or person will then try to force a takeover by one of several options. 

1. Issue a tender offer which is an offer to the company’s current shareholders to purchase their shares at a higher price 
2. Persuading the current shareholders to vote out the board of directors (and replacing them with people who will support the takeover). This is known as a proxy vote act. 
3. Purchasing enough shares in the open market thus giving them the required voting stock to have greater control of the company  

However, there are some tactics often employed by companies to defend themselves from a hostile takeover. Nowadays most board of directors are pretty clued up on these methods which aim to make the takeover bid as difficult as possible. For instance, the board of directors may introduce what is known as a ‘poison pill’ which is when current shareholders are invited to repurchase shares at a discount thus reducing their equity in the company. This means that the company attempting to take over will need to purchase more shares (which is more expensive).

Other methods of preventing a hostile takeover include selling the company’s valuable assets thus making it less attractive or simply repurchasing shares that the company attempting to take over has already purchased.

Examples of Hostile Takeovers

• Kraft Food Inc’s takeover of Cadbury
• AOL’s takeover of Time Warner
• Vodafone’s takeover of Mannesmann

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