What Does Hostile Takeover Mean?
A hostile takeover is a type of merger and acquisition where one company, called the acquirer, takes control of the ownership of another company, called the target company, against the wishes of the target company's management. Also, in this case, the acquirer is called the raider because the acquisition is done by force.
Divestopedia Explains Hostile Takeover
Typically, in a hostile takeover, the raider persists even after the board of directors and shareholders of a target company reject an initial offer. The acquirer then initiates the takeover by offering a "tender," which is a certain fixed price over the current market price of the shares of the target company. Or, the acquirer may try to gain majority ownership through the buying of shares in the open market; however, this may be an expensive route for the acquirer and there is no guarantee that it will mean a successful acquisition. A better option is to start a proxy war where the acquirer convinces a majority of shareholders to replace the management of the target company with another one that is more accepting of this acquisition. Sometimes, the entire board may not need replacing, just the opposing members need to be replaced. The acquirer can choose one of these methods or may choose a combination, depending on the resistance of the target company.
Despite these efforts, a hostile takeover may not always be an advantage to the acquirer for several reasons. Firstly, in any merger agreement that is mutually agreed upon by both parties, all information pertaining to the target company is disclosed. This helps the acquirer to make informed buying decisions. In the case of a hostile takeover, however, the acquirer only has information that is publicly available about the target company. So, after the acquisition, it may find out that there are more hidden debts or technical problems with the target company that can eventually prove to be detrimental to the acquirer. Secondly, when a raider takes over a target company against the wishes of its board, then it can lose its top executives as a result. This can cause an organizational void or a reshuffle that in some cases can even change the viability of the company.