Exploring Hostile Takeover Examples: What You Need to Know

Jan Strandberg
January 3, 2022
5 min read

Hostile takeovers are among the most dramatic and controversial events in the corporate world. They occur when one company tries to acquire another company without the approval or consent of the target company's board of directors. Hostile takeovers are often contentious, as company executives and shareholders grapple with the ramifications of the acquisition for their businesses and their careers. In this article, we will explore the ins and outs of hostile takeovers and highlight some famous examples. We will also examine the strategies used in hostile takeovers, how companies defend against them, legal and ethical considerations, and the impact of hostile takeovers on companies and industries.

Understanding Hostile Takeovers

Before diving into the complexities of hostile takeovers, let's first define what they are and how they occur. Hostile takeovers arise when one company decides to purchase another company without the approval of the target company's board of directors. In a hostile takeover, the acquiring company may offer to purchase the target company's shares at a premium price to entice shareholders to sell and bypass the management of the target company altogether. Because of the controversy surrounding these types of acquisitions, hostile takeovers are closely scrutinized and can generate strong reactions from executives, employees, and shareholders.

Definition of a Hostile Takeover

A hostile takeover is a type of acquisition in which the acquiring company bypasses the target company's management and goes directly to the shareholders with a purchase offer. These types of takeovers are hostile because they are not supported by the target company's management. Hostile takeovers often occur when the acquiring company believes that the target company is undervalued and that the acquisition will create significant value for both companies.

Reasons for Hostile Takeovers

There are several reasons why a company may choose to pursue a hostile takeover instead of a friendly merger or acquisition. Some of the most common reasons include:

  • Acquiring valuable assets or resources that the target company possesses.
  • Gaining access to new markets or expanding the company's market share.
  • Reducing competition or eliminating a competitor.
  • Unlocking the value of the target company's assets for the benefit of shareholders.

Hostile takeovers can be a way for companies to quickly gain access to resources and markets that they would not be able to acquire through other means. They can also be a way to eliminate competition and increase market share, which can lead to increased profits and shareholder value.

The Process of a Hostile Takeover

The process of a hostile takeover can be lengthy and complex. Once the acquiring company announces its intention to purchase the target company, the target company's management may try to discourage shareholders from accepting the offer, or they may try to find a more favorable buyer. This can involve a range of tactics, including public statements, legal action, and negotiations with other potential buyers.

If the acquiring company successfully purchases the target company, it may make changes to the target company's business model, management team, or operations. These changes are often the source of controversy, as the target company's executives and employees may feel that their jobs or their company's culture and identity are threatened.

It is important to note that hostile takeovers can also have negative consequences for the acquiring company. In some cases, the acquiring company may overpay for the target company, which can lead to financial difficulties down the line. Additionally, the negative publicity and controversy surrounding a hostile takeover can damage the acquiring company's reputation and relationships with customers and suppliers.

Famous Hostile Takeover Examples

Hostile takeovers have been a part of the corporate world for many years. In a hostile takeover, the acquiring company makes an unsolicited offer to purchase the target company's shares. This offer is usually made at a premium to the current market price, in an attempt to entice shareholders to sell their shares. However, the target company's management may not be in favor of the takeover and may resist the acquisition. This can lead to a long and contentious battle between the two companies.

Some of the most notable examples of hostile takeovers include:

The Disney-Comcast Battle

In 2004, Comcast made an unsolicited offer to acquire the Walt Disney Company for $54 billion. The offer was made in the form of a stock swap, where Disney shareholders would receive 0.78 shares of Comcast stock for each share of Disney stock they owned. The proposed deal would have created a media and entertainment powerhouse, with Comcast's cable and internet assets combining with Disney's film and television studios. However, Disney's board of directors rejected the offer, citing concerns about the potential for regulatory hurdles and the cultural differences between the two companies. Comcast eventually abandoned its pursuit of the entertainment giant, and the two companies remained separate.

The AOL-Time Warner Merger

In 2001, America Online (AOL) completed a hostile takeover of media conglomerate Time Warner. The deal was valued at $165 billion and was one of the biggest mergers in corporate history. The merger was intended to combine AOL's internet and digital media assets with Time Warner's cable and content businesses. However, the merger was problematic from the start. The dot-com bubble burst shortly after the merger was completed, causing AOL's revenue to decline. Additionally, the two companies had vastly different cultures and struggled to integrate their operations. The merger was ultimately undone several years later, with Time Warner spinning off AOL as a separate company.

The Johnson & Johnson-Pfizer Struggle

In 2006, Johnson & Johnson made a hostile bid to acquire pharmaceutical giant Pfizer. The offer was valued at $68 billion and was intended to create a pharmaceutical powerhouse. However, Pfizer rejected the offer, citing concerns about antitrust issues and the potential for cultural clashes between the two companies. Despite Johnson & Johnson's efforts, the two companies remained separate.

The Oracle-PeopleSoft Takeover

In 2005, Oracle launched a hostile takeover bid for PeopleSoft, a software company that specialized in human resources and financial management software. The bid was initially met with resistance from PeopleSoft's management, who argued that the acquisition would not be in the best interests of the company's shareholders. Oracle persisted, and after several months of bidding and negotiation, finally completed the acquisition for $10.3 billion. This takeover was significant because it was one of the first hostile takeovers completed entirely through litigation. The acquisition allowed Oracle to expand its software offerings and compete more effectively with other software giants like Microsoft and SAP.

Strategies Used in Hostile Takeovers

Hostile takeovers are a common occurrence in the corporate world. They happen when one company seeks to acquire another company without the approval of the target company's management. In such cases, the acquiring company employs several strategies to gain control of the target company. Some of the most common strategies include:

Tender Offers

Tender offers are a popular strategy used by acquiring companies to launch a hostile takeover bid. In this strategy, the acquiring company makes a public offer to purchase the target company's shares at a premium. Tender offers are often used in hostile takeovers because they allow acquiring companies to bypass the target's management and go directly to shareholders. This strategy is particularly effective when the target company's shareholders are dissatisfied with the current management and are willing to sell their shares to the acquiring company.

The acquiring company can also use a tender offer to put pressure on the target company's management to accept the acquisition offer. If the acquiring company acquires a significant percentage of the target company's shares, it can use its voting power to influence the target company's decision-making process.

Proxy Fights

A proxy fight is a battle for control of a company's board of directors. In this strategy, the acquiring company tries to elect its own slate of directors to the target company's board, with the hope of influencing the board to accept the acquisition offer. The acquiring company can use various tactics to gain control of the board, such as soliciting the support of institutional investors or launching a public relations campaign to sway public opinion.

Proxy fights can be expensive and time-consuming, but they can be effective in gaining control of the target company. If the acquiring company succeeds in electing a majority of directors to the target company's board, it can use its voting power to approve the acquisition offer.

Creeping Takeovers

A creeping takeover is a strategy in which an acquiring company steadily purchases shares of a target company over time, without immediately launching a full takeover bid. This strategy allows the acquiring company to build up a significant stake in the target company over time, without alerting the target's management to its intentions.

The acquiring company can use its significant stake in the target company to influence the target company's decision-making process. For example, if the acquiring company acquires a significant percentage of the target company's shares, it can use its voting power to influence the target company's board of directors.

Bear Hug Approach

In a bear hug approach, the acquiring company makes an exaggeratedly generous offer for the target company, in an attempt to sway shareholders and pressure the target company's management to accept the offer. This approach often involves "sweetening the deal," with promises of higher salaries or job security for target company employees.

The bear hug approach can be effective in gaining control of the target company, especially if the acquiring company's offer is significantly higher than the target company's current market value. However, this approach can also backfire if the target company's management feels that the acquiring company is undervaluing the company and its assets.

In conclusion, hostile takeovers are complex and often contentious processes. Acquiring companies use various strategies to gain control of target companies, including tender offers, proxy fights, creeping takeovers, and the bear hug approach. These strategies can be effective in gaining control of the target company, but they can also be costly and time-consuming.

Defending Against Hostile Takeovers

While many companies may fear the prospect of a hostile takeover, there are several strategies that they can use to defend themselves against these types of acquisitions. Some of the most common include:

Poison Pills

A poison pill is a strategy in which a target company issues a large number of new shares of stock, making the acquisition much more expensive and diluting the value of the acquiring company's shares. This strategy can be effective in deterring hostile takeovers, as it makes the target company less attractive to potential acquirers. However, it can also have negative consequences for the target company, such as decreased shareholder value and increased debt.

One example of a company that successfully used a poison pill strategy to defend against a hostile takeover is Yahoo. In 2008, Microsoft attempted to acquire Yahoo for $44.6 billion. However, Yahoo's board of directors implemented a poison pill strategy, which made the acquisition much more expensive for Microsoft. Ultimately, the deal fell through and Yahoo remained an independent company.

White Knights

A white knight is a third-party company that comes to the rescue of a target company facing a hostile takeover. White knights may purchase a stake in the target company or launch their own bid for the company, in an attempt to beat out the original acquiring company and preserve the target company's independence.

One example of a successful white knight defense is the acquisition of Anheuser-Busch by InBev in 2008. Anheuser-Busch was facing a hostile takeover by InBev, but the company was able to find a white knight in the form of Belgian brewer, InBev. InBev agreed to acquire Anheuser-Busch for $52 billion, which allowed the company to remain independent and avoid a hostile takeover.

Staggered Boards

A staggered board is a board of directors in which only a portion of the directors are up for election each year. Staggering elections can make it more difficult for an acquiring company to gain control over the board of directors, as they will have to gain control over multiple elections over a period of time.

One example of a company that successfully used a staggered board strategy to defend against a hostile takeover is Airgas. In 2010, Air Products launched a hostile takeover bid for Airgas, but Airgas was able to defend itself by implementing a staggered board strategy. Airgas' board of directors was elected on a staggered basis, which made it more difficult for Air Products to gain control of the board and complete the acquisition.

Golden Parachutes

A golden parachute is a compensation package that is awarded to executives and other senior employees of a target company in the event of a hostile takeover. These packages are designed to provide an incentive for top employees to stay with the company and help it weather the acquisition process.

One example of a company that successfully used a golden parachute strategy to defend against a hostile takeover is Time Warner. In 2008, Time Warner was facing a hostile takeover bid from Rupert Murdoch's News Corp. However, Time Warner was able to defend itself by implementing a golden parachute strategy. The company awarded its executives and senior employees with generous severance packages in the event of a hostile takeover, which helped to deter News Corp's bid.

Overall, there are several strategies that companies can use to defend themselves against hostile takeovers. While these strategies can be effective, they can also have negative consequences for the target company, such as decreased shareholder value and increased debt. Companies should carefully consider the potential risks and benefits of each strategy before implementing them.

Legal and Ethical Considerations

Hostile takeovers are complex and controversial, and they involve many legal and ethical considerations. These considerations can vary depending on the specific circumstances of the takeover and the industries involved. Some key areas of concern include:

Regulatory Oversight

Regulators, such as the Securities and Exchange Commission (SEC), play a significant role in the approval and oversight of hostile takeovers. Regulators may examine the fairness of the acquisition price, the accuracy of the information provided to shareholders, and the motives of the acquiring company. In some cases, regulators may even block the takeover if they believe it is not in the best interest of the public or the market.

It is important for companies involved in a hostile takeover to understand the regulatory landscape and comply with all relevant laws and regulations. Failure to do so can result in significant legal and financial consequences, including fines, lawsuits, and damage to the company's reputation.

Shareholder Rights

Hostile takeovers can be contentious because they often involve competing interests among shareholders. Shareholders must balance their desire to maximize the value of their shares with their concern for the impact of the acquisition on the target company's employees and culture.

Companies involved in a hostile takeover must be transparent and communicative with their shareholders. They must provide accurate and timely information about the proposed acquisition, including the potential risks and benefits, and engage in meaningful dialogue with shareholders to address their concerns and questions.

Corporate Governance Concerns

Corporate governance is an area of concern in all types of mergers and acquisitions. In hostile takeovers, corporate governance issues can arise when the acquiring company makes changes to the target company's strategy, management team, or operations, without consulting the target company's board of directors or shareholders.

Companies involved in a hostile takeover must ensure that they are following best practices in corporate governance. This includes engaging in open and transparent communication with the target company's board of directors and shareholders, respecting their input and concerns, and making decisions that are in the best interest of all stakeholders.

In conclusion, hostile takeovers are complex and multifaceted transactions that require careful consideration of legal and ethical issues. Companies involved in a hostile takeover must navigate a complex regulatory landscape, balance competing interests among shareholders, and ensure that they are following best practices in corporate governance. By doing so, they can minimize the risks and maximize the benefits of the acquisition, while also maintaining the trust and confidence of their stakeholders.

The Impact of Hostile Takeovers on Companies and Industries

Hostile takeovers can have significant effects on both the target company and the acquiring company. Some of the most common effects include:

Effects on Company Culture

Hostile takeovers often have a significant impact on the target company's culture. Because the acquisition is not approved by the target company's management, employees may feel uncertain about their futures with the company, resulting in a loss of morale and productivity. Additionally, the acquiring company may impose its own values and culture on the target company, leading to cultural clashes and a loss of the target company's identity.

Financial Implications

Hostile takeovers can impact a company's financial performance in a variety of ways. For example, the acquiring company may take on significant debt to finance the acquisition, leading to financial strain and potential credit downgrades. Additionally, the acquisition may require significant investments in order to integrate the two companies and achieve cost savings.

Market Competition and Consolidation

Hostile takeovers can impact market competition by reducing the number of players in an industry and creating dominant players. This consolidation can lead to higher prices for consumers and a loss of innovation and diversity in the industry.

Lessons Learned from Hostile Takeover Examples

While hostile takeovers are fraught with controversy and uncertainty, there are several lessons that can be learned from famous examples. Some of the most important include:

Importance of Strategic Planning

Companies that are vulnerable to hostile takeovers can benefit from strategic planning and robust defenses. Companies should conduct assessments of their vulnerabilities, consider adopting strategies to prevent hostile takeovers, and engage in proactive communication with shareholders.

The Role of Communication

Clear communication with shareholders and other stakeholders is crucial in all types of mergers and acquisitions. Companies should provide accurate and timely information to shareholders, engage in open dialogue with employees, and seek the guidance of legal and financial experts where necessary.

Adapting to Change and Uncertainty

Finally, companies that are facing hostile takeovers must be able to adapt to change and uncertainty. This may involve making difficult decisions about corporate strategy or management, but ultimately, it is essential to remain flexible and focused on the long-term success of the company.

In conclusion, hostile takeovers are complex events that have far-reaching implications for companies and industries. While they can be contentious and uncertain, they also offer opportunities for growth and innovation. By understanding the strategies used in hostile takeovers, the legal and ethical considerations, and the impact on companies and industries, executives and shareholders can make informed decisions about their investments and strategies.

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Jan Strandberg
January 3, 2022
5 min read

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