Is the “Hostile Takeover” always Hostile?

Is the “Hostile Takeover” always Hostile?

A hostile takeover occurs when an offer is made to the target business’s shareholders directly by the acquiring corporation, frequently against the wishes of the target company’s board and management.

A key element in deciding the success of the undertaking however is the decision of the shareholders and how appealing the offer is to the investors.
It is clear that spite of its name, many elements make the “hostile takeover” economically “friendly” to the investors. An offer might become appealing by including various factors:

1. Shareholders receive Above-Market Premium
Usually, the most attractive feature of a takeover offer is the premium given over the target company’s shares’ existing market value. And these premiums are often sizable and intended to entice stockholders to sell.

2. Instant Liquidity – The Cash vs Stock Ratio
Attractiveness also depends on the type of consideration, such as cash, stock, or a mix of the two. While equity offers provide shareholders a position in the combined company and may enable them to profit from future growth, cash offers offer instant liquidity and certainty of value.

3. Confidence in the Deal
A solid offer with a strong likelihood of being accepted will probably be preferred by shareholders because of its certainty. In general, shareholders will find an offer more appealing if there are fewer obstacles to overcome and when the likelihood of the deal is high.

Friendly or Hostile? Shareholders decide!

While shareholders may take management’s opposition to the takeover into account in hostile takeovers. Shareholders may hesitate if the board opposes the takeover and makes a strong case for why the offer undervalues the business or why being independent offers better opportunities. Shareholders, however, shareholders do not hesitate to favor the deal and might ignore the management’s opposition if their interests are affected.

Thank you
Edward Ruvins