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What is a hostile acquisition?

On Behalf of | Aug 12, 2018 | Mergers & Acquisitions

If you have an ownership interest in a Florida corporation, you want to protect that interest and receive the maximum financial benefits to which you are entitled. But what if another company wants to buy your company? Is that in your best interests despite whatever reservations your corporation’s board of directors may have?

As the Corporate Finance Institute explains, a hostile acquisition, a/k/a hostile takeover, occurs when another company attempts to buy your corporation, but your board of directors rejects the bid offer. If the company still wishes to buy your corporation, it can attempt to do so by coming directly to you and the other shareholders with a tender offer or proxy vote strategy so as to bypass your corporation’s board of directors.

Tender offer versus proxy vote

In a tender offer, the company that wants to buy your corporation offers you and the other shareholders a very good price for your respective shares, often as much as 50 percent above their current market value. Its purpose is to buy enough shares so as to become the majority stockholder.

In a proxy vote strategy, the company that wants to buy your corporation tries to convince you and the other shareholders to vote out your corporation’s existing board of directors, or at least the members who oppose the buyout. Here its purpose is to achieve a new board of directors who will not oppose the buyout.

Hostile acquisition defenses

Depending on how adamantly opposed your corporation is to the attempted hostile takeover, it can do a number of things, including the following:

  • Poison pill: It can allow you and its other existing shareholders to purchase new discounted shares.
  • Supermajority amendment: It can amend its corporate charter so as to require a supermajority vote, usually somewhere between 67-90 percent, for any merger or buyout.
  • Crown jewels: It can begin selling off its most valuable assets so as to make it less attractive to the company attempting to acquire it.
  • Greenmail: It can repurchase any of its own shares that the acquiring company has already purchased.
  • Golden parachute: It can renegotiate its employment contracts with its key management people so as to greatly benefit them should the acquiring company fire them or otherwise remove them.
  • Pac-Man: It can attempt a reverse takeover by purchasing extensive shares in the acquiring company.

While this information is not legal advice, it can help you understand hostile acquisitions and what to expect.