Hostile Takeover What it is: A hostile takeover is a type of corporate acquisition or merger which is carried out against the wishes of the board and usually management of the target company.
Funding[ edit ] Often a company acquiring another pays a specified amount for it. This money can be raised in a number of ways. More often, it will be borrowed from a bankor raised by an issue of bonds.
Acquisitions financed through debt are known as leveraged buyoutsand the debt will often be moved down onto the balance sheet of the acquired company. The acquired company then has to pay back the debt.
This is a technique often used by private equity companies. Loan note alternatives[ edit ] Cash offers for public companies often include a "loan note alternative" that allows shareholders to take a part or all of their consideration in loan notes rather than cash. This is done primarily to make the offer more attractive in terms of taxation.
A conversion of shares into cash is counted as a disposal that triggers a payment of capital gains taxwhereas if the shares are converted into other securitiessuch as loan notes, the tax is rolled over. All share deals[ edit ] A takeover, particularly a reverse takeovermay be financed by an all share deal.
The bidder does not pay money, but instead issues new shares in itself to the shareholders of the company being acquired. In a reverse takeover the shareholders of the company being acquired end up with a majority of the shares in, and so control of, the company making the bid.
The company has managerial rights. All-cash deals[ edit ] If a takeover of a company consists of simply an offer of an amount of money per share, as opposed to all or part of the payment being in shares or loan notes then this is an all-cash deal.
The Code used to be a non-statutory set of rules that was controlled by city institutions on a theoretically voluntary basis. However, as a breach of the Code brought such reputational damage and the possibility of exclusion from city services run by those institutions, it was regarded as binding.
It regulates when and what information companies must and cannot release publicly in relation to the bid, sets timetables for certain aspects of the bid, and sets minimum bid levels following a previous purchase of shares.
Strategies[ edit ] There are a variety of reasons why an acquiring company may wish to purchase another company. Some takeovers are opportunistic — the target company may simply be very reasonably priced for one reason or another and the acquiring company may decide that in the long run, it will end up making money by purchasing the target company.
The large holding company Berkshire Hathaway has profited well over time by purchasing many companies opportunistically in this manner. For example, an acquiring company may decide to purchase a company that is profitable and has good distribution capabilities in new areas which the acquiring company can use for its own products as well.
A target company might be attractive because it allows the acquiring company to enter a new market without having to take on the risk, time and expense of starting a new division. An acquiring company could decide to take over a competitor not only because the competitor is profitable, but in order to eliminate competition in its field and make it easier, in the long term, to raise prices.
Also a takeover could fulfill the belief that the combined company can be more profitable than the two companies would be separately due to a reduction of redundant functions. Agency problems[ edit ] Takeovers may also benefit from principal—agent problems associated with top executive compensation.
Such seemingly adverse earnings news will be likely to at least temporarily reduce share price. A reduced share price makes a company an easier takeover target. This can represent tens of billions of dollars questionably transferred from previous shareholders to the takeover artist.Since the hostile takeovers normally happen with regard to public corporations, this type of entity is the subject of analysis in this article.
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Hostile Takeover. Developing . Nov 19, · We all know what a takeover is. That's when one company agrees to be bought by another. But what happens when companies don't agree and the takeover goes hos.
In the United States, a common defense tactic against hostile takeovers is to use section 16 of the Clayton Act to seek an injunction, arguing that section 7 of the act would be violated if the offeror acquired the target's stock.
A hostile takeover is the acquisition of one company (called the target company) by another (called the acquirer) that is accomplished by going directly to the company's shareholders or fighting. The top 5 hostile takeovers of all time Hostile takeovers don’t often work, but even so, keen negotiators regularly turn bidding wars into ignominious battles Topping our list of the five most hostile takeovers is the AOL and Time Warner deal from