Hostile Takeovers: The Acquisition of One Company by Another

A hostile takeover refers to the acquisition of one company by another against the wishes of the former. They usually begin as a friendly offer, with the deal turning hostile once the target company’s board members refuse. A friendly takeover is often referred to as a "merger" rather than a "takeover."

The company being acquired is called the target company while the one executing the takeover is called the acquirer. The acquirer can be a bigger company in the same industry, an unrelated company looking to expand into a new industry, or a financial institution.

Hostile takeovers are more often directed at companies with a record of underperformance. If management hasn’t taken concrete steps to correct the underperformance, outside investors or other firms may look to get involved.  They may have interest in gaining access to a company's patented property, or gaining the ability to sell to the company's niche market.

The takeover can lead to a significant number of layoffs, as the acquirer looks to cut costs and boost profitability. New owners could also look to spin off underperforming business units or change capital allocation priorities, and they may alter a company’s processes or products to make them more cost-effective or profitable.

There are two main methods of a hostile takeover that an acquiring corporation can utilize:

• A tender offer is where the acquiring corporation will appeal directly to the shareholders of the target company and offer to buy their common shares at a predetermined price (usually) higher than the current market price of the stock.
• A proxy vote, also known as a proxy fight or proxy contest, is where the acquiring company appeals to the shareholders of the target company offering to buy out the shares, the acquiring firm will attempt to convince the shareholders to allow them to use their voting rights to elect the new board of directors of the company.

Hostile takeovers can be both good and bad for investors. They may allow investors to receive a premium for their shares through a tender offer or if an acquisition takes place. The mere initiation of a hostile takeover can also help to shake up management and force them to implement changes that can be shareholder friendly, such as a boost to dividends or share repurchases.

A hostile takeover can provide a substantial profit for shareholders when the acquiring firm offers to take over the company at a price much higher than the current market price of the stock.

---

Ready to invest in digital marketing for your business? Let's work together to create a plan designed around optimizing your business directory listings, while incorporating search engine optimization (SEO), content marketing, search engine marketing, lead generation and website design to ensure that your accounting practice is optimized to help you reach your goals.