It should be noted the Standstill Agreement is usually deployed with Greenmail. The evasion and negotiation techniques are usually applied along with active defenses; some literature even considers them a subset of active defenses.
However, they are applied differently and need bidders, allies, and favorable scenarios to play out. Let us explore the theory of Knights below. White Squires are typically not interested in acquiring management control of the Target, but are interested in the Target either as an investment or to gain board seats at the Target company.
A company once attempting a takeover, but comes back discussing a merger with the Target company. A corporate-takeover strategy by which a third party poses as a white knight to gain trust, but then turns around and joins with unfriendly bidders. These sort of poison pill defenses are used as deterrents, but are rarely deployed.
You can think of suicidal defenses as part of the arsenal, but seldom executed given their destruction of value. These are counterattack moves from the Target aimed at the hostile Acquirer to surprise the Acquirer and thwart its intention.
While most, if not all, defenses can counter deals driven by power and greed, they do not necessarily create shareholder value. If outright hostile takeover has grey areas and questionable ethics, so do many of the defenses involved. I have outlined a select few, which are met with stronger resistance than the others. There are many examples of hostile takeovers; in some cases, the bids were successful, while others were fended off due to good defense strategy and execution.
These have a slightly different acquisition approach, which will be further investigated in a separate article.
While many acquisitions of Big Tech from Silicon Valley cannot be categorized as hostile because they are executed in a friendly manner, the primary goal is to remove any possible competition thus leaving limited room for targets.
A good defense is built on high valuation, engaged shareholders, and an active board with competent management.
However, there are times even in these cases when systems get out of sync, creating vulnerabilities and distractions. Hostile takeover attacks or defenses are expensive, time consuming, resource intensive and distracting. The art and science of effective defense is to create more impact or deterrence with limited effort. A modular defense architecture always helps scale your defenses, one layer at a time. A company should always evaluate the risks, opportunities, and tradeoffs before treading from one layer to the other since both the stakes and risks increase as you go up the stack.
Companies also fall prey to the classic dilemma that hostile takeovers are not frequent events and hence not worth investing time or money into robust defense mechanisms to combat them. However, hostile takeover defenses cannot be built or strengthened overnight; rather, this is an ongoing process given the dynamic business environment.
Based on experience, observation, and analysis, I have developed a framework architecture for defending against hostile takeovers. While this architecture will not perfectly fit every scenario, it generally works well and is flexible enough to respond to differences within a process given the proper rigor and structure. I have had the good fortune to implement and test this framework through wargaming at a few corporations in the United States and Canada; however, I believe it can also be adapted to other parts of the world.
Each layer can be considered a standalone lever to employ, or can be used interdependently with other incremental steps towards creating more rigorous defensive positions against hostile takeover intent. As one moves from the independence layer towards the offensive layer, the process gets more complicated, expensive and resource consuming. Hostile takeovers are here to stay, and businesses need to understand the drivers behind them and invest in proactive management of shareholder value, assessing their vulnerabilities and investing in their defense mechanisms.
Decimating smaller companies for power, greed and growth will always remain questionable, and many corporations will likely succumb to these. A third real-world example is when Kraft Foods acquired Cadbury. If a larger company is eyeing up your business, what defenses do you have at your disposal?
Here are a few ways to stop a hostile corporate takeover in its tracks. To do this, you can allow your current shareholders to buy new shares at a discounted price. This means that the acquiring company would need to buy more shares to gain a controlling interest in the business. This makes your company lose value, in turn making it less desirable to others. With the Pacman strategy, the target company flips the switch, chasing after the acquiring company by purchasing its shares.
This can be a powerful deterrent to the acquiring company which is now in danger of losing control over its own business interests. To work, the target will need to have enough capital to purchase significant shares in the acquirer. GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments. GoCardless is used by over 60, businesses around the world.
Learn more about how you can improve payment processing at your business today. Personal Finance. Your Practice. Popular Courses. What Is a Hostile Takeover Bid? A tender offer is a direct approach to shareholders to sell their shares to the would-be acquirer at a premium over the current market price. A proxy fight is a campaign to get shareholder support for the replacement of board members with advocates of the takeover. A would-be acquirer also can buy shares on the open market.
Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms Hostile Takeover Definition A hostile takeover is the acquisition of one company by another without approval from the target company's management.
The most common type of poison pill is known as a flip-in poison pill, which is automatically triggered when a hostile bidder gains a certain percentage of shares in the target company. When triggered, this poison pill gives all shareholders except for the hostile bidder the right to purchase additional shares at a discounted price. As a result, it becomes more expensive to take over the company.
They flood the market with new shares, diluting the ownership of all shareholders and requiring investors to spend more money to maintain their current stake in the company. But the exact impact is unique to each situation. In fact, they can be positive by increasing share prices for both the target and acquiring companies. And since hostile takeovers often involve the hostile bidder buying shares at a premium, this type of transaction could be profitable for you if you sell your shares.
Lynn E. Rosengren, Federal Reserve Bank of Boston. Accessed May 21, Securities and Exchange Commission. Board of Directors. Actively scan device characteristics for identification.
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