hostile takeover

A hostile takeover is a type of acquisition where a company (the acquirer) takes control of another company (the target company) without the approval or consent of the target company's board of directors. In other words, the target company's management is not in favor of the takeover, hence the term "hostile". There are two common ways for a hostile takeover to occur: a tender offer or a proxy vote.

A tender offer involves the acquirer offering to purchase stock shares from the target company's shareholders at a premium to the market price. The goal is to acquire enough voting shares to have a controlling equity interest in the target company, usually over 50% of the voting stock.
A proxy vote involves the acquirer trying to persuade existing shareholders of the target company to vote out the current management so that it will be easier to take over.

The target company can employ several defenses against a hostile takeover, such as a poison pill (diluting the equity interest by allowing current shareholders to purchase new shares at a discount), golden parachute (providing expensive benefits to key management if they are removed following a takeover) and greenmail (repurchasing shares at a higher premium), among others.

Some examples of hostile takeovers are; the hostile takeover of RJR Nabisco in 1988, the takeover of Warner Communications by Time Inc in 1989, and the takeover of Kraft by Heinz in 2015.

[Last reviewed in February of 2023 by the Wex Definitions Team]

Keywords

llcs-corporations-partnerships

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