Hostile Takeover and Ethics
Executive Summary
When one company (called the acquirer or bidder) acquires another company (called the target), then it is called takeover. Takeover can be of two types: Friendly Takeover and Hostile Takeover.
In Friendly Takeover, the bidder informs the target of their takeover plans. If the target feels that the takeover will help its shareholders, then it generally accepts the takeover offer.
A Hostile Takeover is an acquisition in which the company being purchased doesn't want to be purchased, or doesn't want to be purchased by the particular buyer that is making a bid. Members of management might want to avoid acquisition because they are often replaced in the aftermath of a buyout. They are simply protecting their jobs. The board of directors or the shareholders might feel that the deal would reduce the value of the company, or put it in danger of going out of business. Then, how can someone buy something that's not for sale? Hostile takeovers only work with publicly traded companies. That is, they have issued stock that can be bought and sold on public stock markets. A stock confers a share of ownership in the company that issued it. If a company issued 1,000 shares, and say Mr. X owns 100 of them, then he owns a tenth of that company. If he owns more than 500 shares, he owns a majority or controlling interest in that company. When the company makes major decisions, the shareholders must vote on them. The more shares you have, the more votes you get. If you own more than half of the shares, you always have a majority of the votes. In many respects, you can control the company. So a hostile takeover boils down to this: The buyer has to gain control of the target company and force them to agree to the sale.
The two primary methods of conducting a hostile takeover are the tender offer and the proxy fight.
A tender offer is a public bid for a large chunk of the target's stock at a fixed price, usually higher than the current market value of
When one company (called the acquirer or bidder) acquires another company (called the target), then it is called takeover. Takeover can be of two types: Friendly Takeover and Hostile Takeover.
In Friendly Takeover, the bidder informs the target of their takeover plans. If the target feels that the takeover will help its shareholders, then it generally accepts the takeover offer.
A Hostile Takeover is an acquisition in which the company being purchased doesn't want to be purchased, or doesn't want to be purchased by the particular buyer that is making a bid. Members of management might want to avoid acquisition because they are often replaced in the aftermath of a buyout. They are simply protecting their jobs. The board of directors or the shareholders might feel that the deal would reduce the value of the company, or put it in danger of going out of business. Then, how can someone buy something that's not for sale? Hostile takeovers only work with publicly traded companies. That is, they have issued stock that can be bought and sold on public stock markets. A stock confers a share of ownership in the company that issued it. If a company issued 1,000 shares, and say Mr. X owns 100 of them, then he owns a tenth of that company. If he owns more than 500 shares, he owns a majority or controlling interest in that company. When the company makes major decisions, the shareholders must vote on them. The more shares you have, the more votes you get. If you own more than half of the shares, you always have a majority of the votes. In many respects, you can control the company. So a hostile takeover boils down to this: The buyer has to gain control of the target company and force them to agree to the sale.
The two primary methods of conducting a hostile takeover are the tender offer and the proxy fight.
A tender offer is a public bid for a large chunk of the target's stock at a fixed price, usually higher than the current market value of