Hostile Takeover And Defenses
Acquisitions are ordinarily done through negotiations . Negotiations are always done with the maximum holder of shares , the effective owners say who are able to transfer over 50% shares . By this method not only ownership of the company is acquired but also smooth takeover of the Board of the company and employees is possible by way of agreement . But in the case of Hostile Takeover ( not negotiated or friendly takeover ) while attempting the takeover by the bidder several steps are taken by the existing owners to ward off the takeover attempt in a way the ownership control of shares or of the management is not achieved . Even in cases where ownership control is successful , easy transition of control on board of directors and management is made difficult , This is to take more time for the existing owners to acquire and have control, of majority shareholding . Hostile takeover ordinarily happens only when the persons in control of management own less than 51% voting rights . This also happens at a time when the company is not performing well and the share prices are low .
Negotiated settlements involve bargaining , due diligence and result in friendly takeovers with very little resistances and most of the areas of concern are sorted out through agreement between the parties but in Hostile Takeover many of the steps stated above are absent which have its own weaknesses .
Resistances to hostile takeover and its intensity depend to a large extent on the different groups holdings , differences among the management and shareholders and the shareholding pattern .
Hostile takeover is never easy as the aggressive and opportunistic attempt of the bidders are often resisted by a section of the shareholders and management . Nevertheless preparedness for such an eventuality arise particularly when majority shareholding is less than 51% .
Ordinarily in case of joint venture or investment by a majority partner of the promoter , the promoter who hitherto holding over 51% shares normally dilute it to the partner with a clear agreement with him having a right of first refusal (ROFR) to prevent the diluted portion sold off in the market , when the promoter could be reduced to a minority . Such agreements ensures that in the event of the diluted portion holder wishing to sell of his holding is prevented from doing so before first making an offer to the promoter from whom he purchased it and shall be permitted to offload in the market only in the eventuality of the promoter right holder refuses to purchase the shares on the agreed terms . Absence of such protection by way of ROFR by majority shareholder having holding less than 51% could lead to hostile takeover threat . While on the subject it is worthwhile noting that in India , particularly for listed companies , whether ROFR is legal or not in view of the free transferability provision in Section 111A of the Companies Act , is in dispute due to contrary judgments of different High Courts and the matter is now pending in the Supreme Court of India , awaiting final review of the legality .
Hostile takeover is often made difficult for listed companies due to regulations like prescribed in India by SEBI . These regulations through disclosure and prior intimation and short intimation of accumulations , prescribing threshold for open offer and declarations for persons acting in concert ensures sufficient time is given for action by the affected parties to resist the takeover .
However several tactics are adopted by the acquirers for hostile takeover and are often defended .
Some of the most popular tactics adopted by the bidders are :
Bear Hug : This is an aggressive method adopted by the acquirer . This reduces options of the target company . Formal offer made to the Board with a request to satisfy the majority . This is often accompanied by a threat of open offer in short time . This reduces the takeover price as the public...
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