A hostile takeover occurs when one company looks to acquire another “target” company, whether or not the target company desires to be bought out. The acquiring company does a hostile takeover by buying up a controlling amount of the target company’s stock shares. In order for this to happen, the target company must be a public company, and a large number of its shares must be readily available for purchase on the open market.
Most of the time one company wishes to purchase another company, even forcibly, because the target company is highly profitable. This means that the acquiring company will keep the target company doing the same thing it was doing before it was acquired, except now the target company will be under new ownership and the acquiring company will be reaping the rewards of the target company.
Another way that a company can enact a hostile takeover is through a “corporate raid.” What this means is that the acquiring company looks to forcibly buy up a company who has a low stock price because it is not doing well, but it has valuable tangible assets, such as equipment or land. After the acquiring company has successfully conducted the hostile takeover of the target company, it liquidates the target company by selling of all of its equipment and land, effectively destroying the target company.
There are a number of steps that a business owner can take to help ensure that her business and ownership survive a hostile takeover attempt:
- Develop a monitoring system – One of the keys to surviving a hostile takeover is to see it coming a mile away and not be blind to impending threats. This means being on the lookout for any other businesses that have shown interest in acquiring you, as well as monitoring how your stocks are being bought up so as to see if there is one buyer purchasing unusually large volumes of your company’s shares.
- Create a strategy for fending off hostile takeovers – A strategy to counteract an attempt of a hostile takeover is important to have so that it can be enacted at the first sign of a takeover attempt. This strategy should reach to the legal activities, investment banking, PR, and investigative activities of your company.
When an attempt at a hostile takeover is about to be made, the first steps the target company takes to prevent the success of the attempt are crucial. Your hostile buyer and your shareholders will both be carefully scrutinizing every action that you take, so those actions must be bold and decisive steps to show the acquiring company they are in for a long, difficult battle. It is important to consult a business attorney with experience in mergers and acquisitions so that you are aware of what protections the law provides to you and your company and what you can do within the legal system to help fend off this unwanted buyout.