A hostile takeover is a corporate action in which one company, called the acquiring company, attempts to gain control of another company, called the target company, without the target company’s approval or consent.
This is typically done by purchasing a significant portion of the target company’s shares on the open market or by offering shareholders a premium price for their shares in a tender offer. Hostile takeovers are a part of the larger field of mergers and acquisitions (M&A).
Issues present when one company looks to acquire another include:
- Resistance from the target company’s management: In a hostile takeover, the target company’s management and board of directors often resist the attempt, as they may believe the acquiring company’s offer undervalues the company or is not in the best interest of shareholders. This resistance can take the form of public statements, legal actions, or the implementation of defensive measures.
- For example, during the attempted takeover of Yahoo by Microsoft in 2008, Yahoo’s board of directors rejected Microsoft’s offer, believing it undervalued the company and its growth prospects.
- Negative impacts on the target company’s employees: Hostile takeovers can create uncertainty and anxiety among the target company’s employees, who may fear job losses or changes to their working conditions.
- For example, when Kraft Foods acquired British confectionery Cadbury in a hostile takeover in 2010, the employees of Cadbury were concerned about potential job losses and the erosion of their company’s distinctive corporate culture. In some cases, these concerns turned out to be well-founded, as Kraft closed some Cadbury factories, leading to job losses.
- Possible disruption to the target company’s ongoing business operations: The process of a hostile takeover can be time-consuming and distracting for the target company’s management, which may negatively impact ongoing business operations.
- For instance, during the hostile takeover attempt of Airgas by Air Products in 2010-2011, Airgas’s management was preoccupied with defending the company, which may have affected their ability to focus on the company’s core operations and growth opportunities.
- Challenges in integrating the two companies: A hostile takeover often results in the integration of two distinct companies with different corporate cultures, management styles, and business operations. This can create challenges in harmonizing the various aspects of the combined entity, leading to decreased efficiency and increased costs.
- For example, when AOL and Time Warner merged in 2000, the two companies faced significant challenges in integrating their different corporate cultures and business models, ultimately contributing to the eventual dissolution of the merged company.
- Potential regulatory issues and scrutiny from government authorities: Hostile takeovers often attract regulatory scrutiny from government authorities, who may be concerned about potential antitrust issues, market concentration, or the impact of the takeover on consumers and the wider economy.
- For example, in 2016, the U.S. Department of Justice filed a lawsuit to block the hostile takeover attempt of Monsanto by Bayer, citing concerns about reduced competition in the agricultural sector and potential harm to farmers and consumers.
Mergers and acquisitions law provides the legal framework for such transactions, including regulations and guidelines for tender offers, disclosure requirements, and antitrust laws. These laws aim to protect the interests of all parties involved, including shareholders, employees, and the companies themselves.