It's not uncommon for companies to acquire their rivals, acquire a hot startup, or merge with their rivals. To close a deal, public firms require the consent of their shareholders and directors. Even if management is opposed to an acquisition, the acquiring business might use so-called hostile tactics to seal the deal.
Hostile Takeovers
Attempting to acquire another company, the target company, without the consent of the target company's board of directors, is known as a hostile takeover. In a hostile takeover, the directors of the target firm do not support the directors of the purchasing company.
The purchasing business can either authorize a merger or appoint its directors and officers to administer the target company as a subsidiary if it purchases a sufficient number of shares. When a potential acquirer makes a direct or tender offer to the investors of the target firm, hostile takeover attempts are common.
Friendly Takeovers
When the boards of directors of both companies agree to a merger, it is called a "friendly takeover." With the rise of activist hedge funds, aggressive takeovers and campaigns have grown increasingly commonplace. Both shareholders &'' management are on the same page in a favorable takeover. In a merger, the directors and shareholders of one firm referred to as the surviving company, consent to the acquisition of the shares and assets of another. As a separate legal entity, the other is no more. Those who own stock in the now-defunct corporation will receive shares in the new one.
Why Do Takeovers Occur?
Regardless of whether the takeover is friendly or hostile, the effect is the same: the two firms will be merged into a single one. Because of a variety of factors, including:
To Gain Operational Efficiency And Scale
It is possible to obtain operational efficiencies and economies of scale by merging two smaller enterprises so long as they operate in the same industry and employ the same resources.
To Buy A Specialist Company
Because the target firm has proprietary technology, an acquisition may be necessary. This may be the case in the absence of a competent R&''D team or a desire to save time and resources by not creating new technologies.
A data management business can consider acquiring a target company with proprietary artificial intelligence (AI) technology and then integrating it into their own data management platform.
Empire-Building By Management
An "empire build" strategy by management may result in takeovers. Acquiring other businesses is one way to grow a company's size, breadth, and impact. Shareholders in the acquiring firm are often wary of mergers and acquisitions based on the premise that the management team is more concerned with maintaining control over resources than with optimizing the use of those resources. The company's total business risk may increase if it acquisitions in unrelated areas. Takeovers for the sake of expanding an empire may not be beneficial to shareholders in the long run.
Hostile Takeover Strategies
Shareholders are advised to vote against a hostile takeover by the target company's management and board of directors. In a hostile acquisition, the acquiring business might use the following tactics:
Offer To Purchase
It's a direct offer to shareholders to buy their stock at a higher price than the existing market value. For example, if the target business's share price is $20, the acquirer firm might make a tender offer to acquire shares of the target company for $30 per share (a 50 percent premium). If you want to take control of a target firm, you must buy enough stock.
Proxy fight
If shareholders of the target firm join together and vote out their board of directors, the acquirer company can successfully take over the target company. For example, the acquiring business might reach out to the target company's shareholders to vote out particular directors at the annual general meeting (AGM) and install a new board. With a proxy war, shareholders might elect a new board of directors more amenable to a takeover offer from the target firm.
Considerations for Proxy Fights
Tender offers or proxy fights are the most common methods of completing a hostile takeover. A tender offer is a way for a company to acquire a target company's stock at a higher price than the existing market value. Typically, shareholders have a limited amount of time to accept this offer. Incentives provided by the acquisition corporation's premium above market value encourage shareholders to sell to the new owner.
SEC requires a Schedule TO if the acquiring firm owns more than 5% of the target business's stocks in a class. 7 A target company is more likely to comply with the acquisition company's criteria when the acquisition company is financially capable of making a tender offer. It is the goal of the acquirer to persuade shareholders to vote in favor of new management or other business actions in a proxy war.
